Business owners must always consider bankruptcy as the last option with other extreme possible choices available in the market. Debt consolidation is often under consideration to avail lower monthly payments and steer clear of bankruptcy.
Bankruptcy comes with a lot of disadvantages. Some of these include high-stress levels, long period financial impact, and asset exchange for debt payment. The stress could result from attending court, filing forms, etc.
Similarly, one of the long-term financial impacts could include the unavailability of loan credit from the market. However, loans for bad credit with no guarantor and no fees from a direct lender can provide help. Moreover, asset exchange for debt payment can include either selling car, home, etc., to become debt-free.
Besides this, debt payment can include exchanging a car or house for as security with the lender, bank, or financial institution. Unfortunately, many people believe that going bankrupt is far better than paying off debts. A debt consolidation loan can provide financial assistance, but building it requires taking a few steps.
Steps to Take Before Building a Debt Consolidation Loan
● Calculate the Overall Outstanding Loan Amount
Before deciding to consider a debt consolidation loan, it is essential to determine the required loan amount to the decimal. Therefore, the best practice would incorporate calculating the total loan requirement from bank statements.
This step would also incorporate lender charges on making full payments. Therefore, you should get in touch with the lenders and confirm the sum required to clear the total balance. It would help to close the account by taking legal steps, especially if it was taken after a bad credit rating.
● Monthly Expenses
The second step includes calculating the current loan expenses. It involves the same action as the previous one. It means you need to view the bank statements to sum the total loan. While doing it also make sure to cover your necessary monthly bills, expenses, etc.
Before deciding whether to opt for a debt consolidation loan, consider both monthly expenses along with loan payments and their interest rates. Compare the overall monthly charges against possible debt consolidation loan and its overall percentages.
● Monthly Repayments
The previous step would prepare for estimating monthly repayment affordability. However, this should also involve budget planning. It would also help to figure out unrequired expenses and move forward by building a repayment plan.
The repayment plan should involve estimating the right amount of money for borrowing, type of loan, repayment intervals, interest rates, etc. Keep in mind that debt consolidation loan become much more stressful if these steps get ignored.
● Get Consultation
The first three steps would help to overcome bankruptcy with the assistance of a debt consolidation loan. However, consulting a financial advisor would prove beneficial. It would help to receive consultation as it would enable you to decide the loan, and manage money.
The money management advice would enable to diminish unrequired monthly, and yearly expenses, build savings and create new sources of money. All of these steps would help to increase income, make earlier repayments, and decrease the loan duration.
● Considering Alternative Options
Before proceeding for bankruptcy, or a debt consolidation loan, consider alternative loan options. These could include payday, unsecured, secured, short-term, long-term, etc. Moreover, debt consolidation wouldn’t make sense under certain circumstances.
Inability to clear the loan with a single one, higher than overall current repayment, and sorting debts would prove useful. Additionally, going to a debt advisor would also help with creditors and build a better repayment plan.
● Do Regular Credit Checks
There is a general rule of thumb between lenders and borrowers. It states that the former would offer higher interest rates if the latter has a low credit score. Lenders only provide a debt consolidation loan to borrowers if they have a score in the mid 600 range.
However, often bad credit lenders can accept low range scores like 580. Numerous banks provide free tools to monitor and check credit rating. These tools ease the burden of lender identification. It also simplifies lenders that offer loans on bad credit. Along with that, the tools state the requirements for the score.
● Considering Secured Loans
Bankruptcy would take a toll on generating repayments through secured and unsecured loans. However, if you plan to switch to a debt consolidation loan and cannot find an unsecured option, it is still beneficial to go for a secured loan.
A secured debt consolidation loan would provide a loan secured against an asset like a house, car, etc. An unsecured loan comes with no security but high-interest rate, that problematic for the borrowers in the long term.
Moreover, the approval for a secured debt consolidation loan often happens faster than an unsecured loan. It is because the security is sufficient to make repayments in case the borrower defaults.
Furthermore, the interest rate of an unsecured loan would remain significantly lower than an unsecured loan. Therefore, it would help to make repayments easier than and avoid situations of defaults or late payments.
Besides this, making regular repayments with the assistance of a single loan to clear previous loan repayments would improve the credit rating. Therefore, it would remove the loan borrower from the limelight of a bad credit score.
● Build a Short-Term Credit Improvement Plan
If the financial burden doesn’t decrease even after considering previous options, then it is time to build a short-term credit improvement plan. It should showcase consistency in monthly debt allocation money.
Keep up the momentum for a few months. After that, go to a bank, credit union, or a financial institution to get a financial review. At the same time, also apply for a debt consolidation loan.
Opting help from offline lenders would increase the chances of the loan.
Availing a debt consolidation from offline lenders is better because you can showcase the steps take to overcome a financial crisis. Moreover, the minimum criteria for online lenders is often rigid. Meanwhile, offline lenders can become flexible, especially after looking at your consistency to make repayments.
After getting a review from the offline lender, ask for a copy of the credit report to check the errors. The first copy of the year is always free; however, consecutive ones would come with a slight charge.
● Debt Settlement
The option of debt settlement is a step more than debt management. The Freedom Debt Relief and National Debt Relief settle borrowers’ debts for a lesser amount than owed. However, the catch is that the amount deposited into the settlement account of the company is before beginning negotiations with the creditors.
Therefore, debt settlement forces the borrower to make regular repayments by default. Conclusively, before choosing a debt consolidation loan over bankruptcy, think about these options.
A debt consolidation loan can help to overcome bankruptcy. But, before considering it as an option to think about the outstanding loan amount, monthly payment, repayment plan, alternative option, etc.