All entrepreneurs need money to bring their ideas and innovations to life. This means any small business starting from the ground up may need a loan. You may have to borrow personal money from multiple lenders which means incurring several debts. This is not something to be ashamed of and is an important part of bringing your business to life.
However, it is also important to be savvy when it comes to borrowing money as if you want higher profit margins, you’ll need to cut the cost of these loans where you can. One way to cut the cost of having multiple loans could be through a debt consolidation loan.
A debt consolidation loan allows you to borrow the amount of money you owe to pay off all your debts. This means you will then have only one lender to repay and this can make life a lot simpler.
Debt consolidation loans can cover different types of debts. For example, payday loans, store cards, credits cards, and business debt. Many businesses run into cash flow problems which means the money borrowed to get it off the ground can start to build up. Swapping this debt for a more affordable one could help you get back on your feet.
When does debt consolidation make sense?
Debt consolidation seems like the most logical course of action if you have multiple debts with different creditors. However, if you do decide to get a consolidation loan, other factors are important to check:
– You will need to make sure that you’re paying lower rates of interest on this debt than you would be if you continued having multiple debts. Even if the interest rate is lower, make sure it doesn’t end up costing you more if you are paying it back over a longer period.
– Ensure the savings you make on interest are not cancelled out by other costs. Some companies charge a high fee for arranging a loan. If you’re getting advice about a consolidation loan, the company may also charge a price for it. Make sure they give you help which is worth the money.
– Check you will be able to keep up with the repayments. Nobody can predict the future, but you should take into account that if an emergency of some kind happened you would still be in a position to pay back the loan. If you think you are treading on thin ice with the repayments already, then it is probably best to look for an alternative solution.
– Make certain you’re cutting back on spending during this time. There is little point getting a debt consolidation loan if you continue to spend a lot of money on credit cards and then start creating other debts for yourself. You will need to have a budget plan which does not include any other form of borrowing and allows you to keep up with loan repayments.
Advantages of debt consolidation.
If you can get a consolidation loan which fits the criteria above, then it can have some great benefits including:
Improving your credit score.
If you keep up with the monthly repayments of your consolidation loan this will slowly start to build your credit score. This is important, as if you ever need to take out another loan for business, banks will look at your credit score to decide if your application is accepted.
Lower and fixed interest rates.
If you manage to secure a loan which has lower interest rates you will be paying back much less than you would have done with multiple debts. Usually, you know the interest rate on your loan will not change (unless stated otherwise in the terms and conditions of your lender). Even if they do alter, one interest change is much easier to keep track off than the interest rates of multiple debts.
Knowing that you have one repayment coming out of your bank every month makes it far easier to budget for the rest of your life and in other parts of your business. Now that your debts have been streamlined, you can start to think about your other costs and how you can afford them.
Clear end date to debt.
When you have several repayments, all with growing interest rates, it can be hard to see an end to your debt. When you take out a consolidation loan you will be given a payment plan so you can see exactly when you will have cleared it. When you have a clear structure like this it may also relieve some of the stress and anxiety which comes with debt.
Disadvantages of debt consolidation.
If you start to miss repayments on your consolidation loan this will damage your credit score. This could end up making it much harder to get a loan in the future.
Secured loans can be risky.
Debt consolidation loans can be hard to get at good interest rates. Especially if they are unsecured. This may leave you with having to secure the debt on an asset such as your house. This could put you in a very vulnerable position and the anxiety of having taken this risk may affect your mental health.
Debt consolidation for bad credit.
If you have bad credit, it is still possible to get a consolidation loan. Consolidation Express, for example, considers all applicants regardless of their credit score.
Find out if you are eligible today.
Whether a consolidation loan is right for you depends on varying factors. However, if you have debts with multiple lenders, it more often than not puts you in a better financial and personal situation. This is especially true if you’re a small business owner, as dealing with your debts leaves you to focus on the more exciting aspects of your company.