It is always a challenge for the entrepreneurs to manage business debt. If you have to juggle multiple monthly payables, the accounting and administration of debt payment itself becomes a troublesome task, which takes focus away from core business development. Such a challenge can become more taxing over time as a never-ending fund handling nightmare.
Those who are dealing with a confusing cycle of payments with various business loans, there is a quick solution to think of as debt consolidation, which if used rightly, has the potential to save thousands of dollars in terms of interests.
Meaning of debt consolidation
Debt consolidation is the process of availing a single loan to close all existing loans. With effective consolidation, businesses can have a one-time replacement for all the existing payments with a single consistent payment, ideally with a lesser interest. In additional to the financial benefits, it also offers more convenience to the users by freeing up the borrowers from the chaos of accounting for multiple payouts on a monthly basis. Being indebted to only one can also has the psychological advantage of enjoying more peace of mind.
Why one needs to go for debt consolidation?
If you live in Las Vegas, the non-sleeping city known for leisure and entertainment, it is not difficult for someone who lives an extravagant life with frequent visit to the casinos to fall in debts. When it comes to businessmen, the need for debt consolidation may be the result of multiple loans taken for business establishment or enhancement. Whatever the reason for consolidation may be, we can generalize the problems into three categories as below.
- Misunderstanding the original loan terms
While considering various types of loan terms and interest rates, no doubt that borrowers get committed to some loans with the terms and conditions they don’t completely understand. In real, the actual APR may be more expensive than what you imagine.
If you are stuck with a few of those high interest loans, it may be smart to consolidate those and pay them back at once. However, while doing consolidation, you need to always ensure the effectiveness of it with an effective APR calculator to save money.
- Getting out of an emergency one-time jam
Sometimes due to emergency expenses, you may have to take out some high-interest loans. Once that emergency has been effectively passed and you are in a much relaxed position to shop around, you can think of refinancing the high-interest loan with a low interest loan taken as consolidation method.
- Over-leveraged with multiple debt sources
There are also debtors who simply find themselves over-leveraged with ten or more short‑term loans, mostly with exorbitant interest rates. This may be a difficult scenario to handle, especially if the businesses are in low cash flow situation and the borrowers have low credit scores.
In any case, nowadays you can find consolidation solutions with many service providers including online consolidating companies that offer a variety of debt consolidation options. An entrepreneur should be smart enough to handle debts efficiently in order to succeed. And it is very important to choose a reliable and reputable creditor while planning debt consolidation in order to enjoy reliable long-term benefits.
Author Bio: Trevor Stalls is a credit consultant, practicing in Las Vegas for a number of corporate and individual clients. He used to write articles in blogs discussing about debt consolidation and different lines of credits.