In accordance with www.forbes.com, only 10% of businesses survive and the rest 90% fail because they are not making enough money to clear all their debts. Businesses take loans from various organizations in order to meet the various requirements of their business to reach new heights. However, most of the business owners struggle with the debt that they have. If you have your own business and you are overwhelmed with the debt that you have to repay, but you are not able to do it on a proper time, debt consolidation is undoubtedly going to be the best for you. A debt consolidation program will assist in combining the diverse balances, which you owe to your creditors, into a single payment and only one rate of interest. Debt consolidation is responsible for lightening the burden of a business owner and assisting him to repay the debt in a simple and convenient manner. However, numerous misinformation and myths are associated with debt consolidation, which has misled a number of business owners. This is why you should have a proper knowledge about debt consolidation and know how it is going to help you and the time when you can consider it as a debt relief option.
Given below is a list of the important facts that you should know about debt consolidation.
When you decide to consolidate the debt, you are actually having another lender
Debt consolidation can normally be done through the third party systems of payment. As soon as you decide to consolidate the debt, you will not be responsible for making payments to the creditors from whom you have taken loans, but you have to pay money to the company or agency, that you have decided to work with. This agency will be responsible for paying money to the creditors to whom you owe the debt amount. These agencies normally have a positive arrangement as well as a relationship with financial lenders. This is why they can offer low rates of interest and can clear the rest of the debt that you still have to pay.
Debt consolidation loans are of two kinds
You cannot decide to consolidate your business debts until and unless you have a complete knowledge about both the kinds of debt consolidation loans that are normally provided by a debt consolidation agency. The two kinds of loans include the secured loan and unsecured loans. The secured debt consolidation loan is normally related to a particular asset like your home, car, or any other property, which is normally used as collateral if you are defaulting on the loan amount. Unsecured debt consolidation loans are not related to any asset and they are based on credit history, especially if you are a borrower, with high risk.
You might not be able to secure the rates of interest that are normally advertised
You need to understand that a low, as well as an appealing rate of interest that is advertised to you, may not always be available to you if the credit score that you have is not great. Furthermore, a few of the good rates of interests are normally available for a certain time period. This is why it is crucial to carry out research on the advertisements on the debt consolidation agencies that you see and decide whether you want to go for that particular agency.
Debt consolidation is not responsible for erasing the debt that you have
Debt consolidation assists in merging all the balances into a single payment, which is not only simple, but also extremely convenient, and it can also lower the rates of interest, thereby making the payments far more manageable. However, you need to understand that your debt is not going to be erased in any manner. When you opt for a debt consolidation loan, it will bundle all the debts into one single loan, which will be used for paying off all the loans that you previously had to pay to your creditors.
You need to stop accumulating more debt if you want to consolidate your existing debts
If you want your debt consolidation plan to work, you have to resist accumulating more amount of debt, during the process of repayment and close the accounts as soon as the debt has been repaid completely. It is extremely sensible for a business to avoid taking loans from other creditors when they are working with the debt consolidation programs for successfully paying back all the debt that they had already accumulated. If you keep on taking more loans even when you are in the middle of a debt consolidation program, you are not solving your problem of getting rid of the debt amount. Rather, you are creating a cycle of debt, which you cannot escape easily.
Counseling agencies can charge fees
It is true that most of the credit counseling organizations are non-profit but a number of them are known to charge a certain amount of fees for consolidating your business debts. The credit counseling agencies are responsible for charging administrative fees because of the services that they provide. They can also provide upfront fees for a debt consolidation program, which allows their business to run smoothly. However, it does not matter whether you are choosing a profit or a non-profit organization and it is definitely not about the total fees that they are charging. It is your duty to compare both the kinds of organizations when you have already decided to consolidate your debts. You should ensure that the organization you are working with can be trusted and they should be able to make the debt payments extremely affordable.
Debt consolidation and credit counseling is not the same
Most of the business owners get confused between debt consolidation and credit counseling, but it is important to understand that a number of differences exist between them. The credit counseling organizations are responsible for employing the certified counselors, who will help you to create a proper budget as well as a plan for helping you to get out of your withstanding debt. It is the credit counselor who can recommend the debt consolidation loan for improving the finances. Credit counseling agencies normally offer debt consolidation programs as well, but it is best to conduct your own research before you decide to consolidate your debts.
You should not decide anything on the basis of what the other businesses are doing. It is your duty to know in details about a debt consolidation loan before you choose to consolidate all your debts.