Repaying all your loans one by one is a very lengthy process for those of you who have various outstanding loans in different banks. In such a situation, you may be searching for a more convenient way to clear your outstanding debt. Consolidated loans serve this purpose for you as they combine all your outstanding loans into a single loan so that you as a borrower will need to pay only once in a particular period. Debt consolidation is also a finance strategy adopted by governments as it provides much more convenient handling of the loan repayment process.
The Two Kinds of Consolidation
This is ideal for business persons who find it difficult to manage the size or count of their outstanding debts. The providers of such facilities of consolidated loans are mainly banks and credit cooperation. Also, nowadays you will find some companies who only deal in debt consolidation. Two kinds of debt consolidations are possible in the form of loans, secured and unsecured. Under the secured option, you as a borrower must keep some asset as security if the loan is not repaid. The unsecured option does not have the necessity of any asset as the security but is riskier in nature. The interest rates are much higher in this case, and the loan is difficult to be sanctioned.
The Situations Where It is Applicable
Now to know whether you require debt consolidation loan in your case, you must know the situations where it can prove to be beneficial. The first such situation is of course when you require making many repayments in a single month. In this case, a consolidated debt manages your repayment liabilities efficiently. It is especially applicable to those people who have nearly reached the credit limits on their credit cards. Another situation is when you have home equity, that is, when the ownership value represents the market value of the home. In such a situation, lower rates of interest would be applicable. So debt consolidation would be favorable.
The Different Kinds of Debt
You must also have knowledge about which kinds of debt you can consolidate. If you have a payment to make for a credit card, consolidating the outstanding amount can be helpful. It can also be done when you don’t meet the required eligibility to conduct a transfer of balance. You can also choose to consolidate the debt on your store card. A store card is a type of credit card applicable for some particular store. When you purchase some raw material regularly from a store, you may have such a card. There is scope for consolidating a few other types of loans too, such as repayments to certain utility companies.
Judge Your Situation
So here is a basic overview of debt consolidation that any layman would understand. This financing solution is used by companies and individuals alike nowadays. Companies require huge loan repayments for several purchases in the past. Individuals need this too, due to increased purchase transactions as a result of improved lifestyle. After you know what debt consolidation is, you can assess whether you need it for your business and proceed accordingly.