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10 Crucial Steps That Will Guarantee a Successful Debt Consolidation Process
Debt consolidation is an excellent option for solving your business debts. It can help you to relieve and solve your business’s financial problems. However, while contemplating on this debt relief strategy, you should think smart. Your major goal should be getting a loan that has a lower interest rate, affordable monthly repayments, and a long-term repayment plan. With all these, you will have the best debt consolidation deal.
Calculate outstanding debt
This is the first step in preparing for debt consolidation. When you have lots of credit scattered everywhere, you should make a list of all the loans that you have. You should find out how much you have to pay for every loan that you owe. This should be inclusive of both the capital amount and interest. When you have this amount, you can add up all your loans to get the total amount that you owe.
Determine the prepayment penalty
Most loans usually have a prepayment penalty. A prepayment penalty is the amount of money that you will pay for closing the loan before its full term. The lender usually takes a penalty to make up for the loss that will be incurred for not getting the remaining interest payments. The loan contract will contain details of the prepayment penalty. You should get the clauses and read them to understand how much you will be paying and when.
The total amount for consolidating
When you already know the amount of loan that you owe and the prepayment penalty, you can calculate the total amount that you owe. You can achieve this by adding the total amount owed and the prepayment penalties. This is the total amount that you will consolidate. This is an equivalent of the loan size that you will require in order to pay off all existing loans.
Calculate the APR
Some factors like loan terms, interest calculation, interest rates, and others make loans look similar, but in reality, their APR and interest rates vary significantly. You should get accurate calculations using an APR calculator. After calculating the effective APR for every loan, you will be in a better position to determine whether consolidating your loans is a good option or not. This will help you know whether a new loan will be beneficial to you or not.
New funding options
You will have all the information that you need regarding your existing loans. With this in mind, you should shop around for a new loan for consolidating your credit. A variety of options are available, for example, SBA loans, long-term bank loans from banks and other financiers, and even short-term loans. Just like other loan products, your eligibility will depend on your annual business revenue, individual credit score, and a few other considerations. You can contact your lenders directly or you can hire a brokering firm to assist you in evaluating your options. You should get a loan that is equal to the total amount that you owe including the prepayment penalties and with a lower APR than existing loans. For more funding options, you can check out with nationaldebtrelief.com.
You should compare the APR between your existing loans and your new consolidated loan. Comparing these numbers is crucial because it will determine whether you are getting a good deal or not. If the commercial loan broker or lender that you are dealing with has not disclosed the APR to you, you can calculate an effective APR for your new loan. By comparing different products, you will be able to determine whether the new loan is a good financial option for you.
Make a choice using a loan amortization schedule
Even after comparing the effective APRs, the differences in loan terms can impact the total cost of your loan. To compare the costs, you should begin by creating a new loan amortization schedule for the consolidation debt. This is just the same as what you were calculating for your existing loans above. Using the total interest amount, you should calculate the total borrowing cost on every amortization schedule. With the total estimated amount, you will be able to determine whether debt consolidation will save you cash or it will cost more in terms of interest.
Apply for your new loan
After carrying out extensive research, you will be in a position to apply for your new loan. However, make an application if you are confident that the comparative APR and cost of borrowing the new loan will be worthwhile for your business. You should choose the financier that offers you the best rates. You can sign the loan contract for you to get the lump sum money that will consolidate all your existing loans.
Pay off existing debts
After qualifying for the new consolidated loan and signing on the dotted line, you will get your lumpsum cash from the lender. You should use the money to immediately pay off all existing debts with the lumpsum payment. For every loan, you should pay the total amount that is due and this will include any early repayment penalties. After making the lumpsum payments, you will have closed out all the loans that you owe. You will only remain with a single loan that has one regular payment.
Adhere to the new payment plan
After consolidating your loans, you should make sure that you adhere to the terms and conditions of your new loan. This means that you should make regular monthly payments as you will just be dealing with one lender. Even though paying off your business debt is never easy, keeping up with regular payments will help boost your credit score and will steer you in the right direction if you want a debt-free life.
Debt consolidation can be quite a tricky process, especially if you are dealing with several loans. This is why you must be cautious to avoid making any mistakes. To manage debt effectively, you should get all the information that you need regarding consolidation before you plunge in. Debt consolidation works best when the business owner is highly educated about what he/she is doing and how it will be of benefit to the business.