In today’s economic scenario, it is easier for businesses to fall into the seemingly never-ending debt trap. Many of the businesses go bankrupt due to debts and many suffer ongoing troubles with debts. For those who want to get rid of multiple troubling debts effectively, debt consolidation is an ideal way out.
There are more debt-consolidation options for businesses compared to individuals. The primary options businessmen explore are taking a straight debt consolidation loan, applying for another business loan, or taking commercial debt counseling.
Debt consolidation vs. refinancing
Most of you may have heard the term debt consolidation along with another frequently used term as refinancing. Most of the time, even the lenders may use these terms interchangeably. However, even though these have some similarities, refinancing and debt consolidation are not the same.
- In refinancing, the borrower takes a new loan at a lesser interest rate to pay off a single existing loan, which has a higher interest rate.
- Debt consolidation is primarily the process of refinancing many existing loans and other lines of credit to a single new loan.
To conclude, debt consolidation itself is a form of refinancing, but not all refinancing is debt consolidation.
Most of the individuals end up in debt chaos due to undisciplined financial management. In states like Las Vegas, people have many easy ways to lose money such as spending time at the casinos and gambling. Only after drowning up to neck, many of them realize the depth of the actual trouble they are into.
Planning for debt consolidation
When aiming at consolidation by fully understanding the actual debt consolidation meaning, next intensive planning needs to be done in order to make sure that debt consolidation fully works in your favor. Here is an ideal step by step approach to it.
Step 1: Gather all you credit statements, loans, and bill statements. You should have a clear-cut understanding of the debt burden of your business to plan whether consolidation is an ideal option or not.
Step 2: Categorize all debts. There is no such rule that you have to consolidate all the debts together to get consolidation loans. There may be some to be paid off now and others which can be put off until later. Consider the loans of urgent nature for consolidation.
Step 3: Explore the possible debt consolidation options available to you. Compare the terms and conditions, fees, and interest rates to understand which one works the best for you and offers you optimum benefits in light of your business objectives.
Step 4: Calculate the repayment you need to make through the consolidated loan. Assess the short-term benefits and long-term burden it may put on you. A consolidation loan is not actually a magic key to get rid of all your financial burdens, but it is just a temporary solution to give you more room to pay off your debts.
Step 5: Seek commercial debt counseling provided by a specialized expert. Such counseling will help you to make a realistic plan to pay off your business debts. The debt counselor assigned to you through such programs will also help you to execute the plan and ultimately become debt free.
You need to remember that if the consolidated loan again goes unpaid, it may further affect your business assets or cause your house to get seized by consolidating companies (in terms of secured loans). Moreover, it may also adversely affect your credit rating upon defaulting consolidated loan repayment, in turn giving you a very adverse financial reputation.