When consolidating their credits, the person agrees with a single instalment less than the sum of all the payments made per month. This can occur as a result of a lower interest rate or the extension of the financing term.
To put it another way, when the bank offers debt consolidation, it is proposing to buy the loans that the debtor owns with other institutions. Thus, you win a new customer, providing you with better credit conditions.
Advantages Of Debt Consolidation
There are several advantages of debt consolidation. First of all, it is useful when faced with short-term liquidity problems.
Likewise, unifying the loans allows for greater order. Instead of having multiple instalments with different due dates, there will now be a single disbursement that can be strategically scheduled.
If I receive my salary on the 15th of each month, an ideal date to pay the bank would be, for example, every 16. In this way, I am reducing the risk of running out of funds to meet my obligations.
An additional advantage of debt consolidation is that some financial institutions offer a grace period. That is, the individual can unify their credits in April and schedule the first instalment of the new loan for July. Thus, for three months, the user will not have to make any payment to the bank.
Disadvantages Of Debt Consolidation
One possible downside to debt consolidation is the increase in total expenses. This will depend on the debt period (which may have been extended) and the interest rate set by the bank for the new loan.
Therefore, it is important to calculate the total disbursements until the end of the financing period.
Debts often drown many, so a feasible alternative to lessen financial commitments is debt consolidation.
Take an inventory of all, yes, ALL of your debts, no matter how “small” they may seem. Verify conditions according to the contract of each of these, that is, balances, interest rate, fees, etc.
Check your credit record, check that each of the debts contracted in the past is officially paid off. That is, you have the settlement letters issued by the respective bank. If there is any irregularity, it is best that you approach the bank to file a formal claim.
If your credit history is in order, you should analyze how much the monthly payments will amount to when carrying out the debt consolidation; Check the percentage that it will occupy of your monthly income and if you will have enough left for primary expenses (food, health, education, etc.). When unifying the debts, look for a lower instalment than what you currently pay, but that is not in such a long term that it could make you invest more of your money in interest.
Before signing the debt consolidation contract, read its restrictions and terms. Corroborate the itemized fee, that is, how much the insurance payment, interest, capital payment will amount, if there are no suspicious charges, etc.
Once you have made the decision, do a restructuring of your budget. Be aware that it is vital to organize your money inflows and outflows; Refocus your expenses and savings, limit yourself to discretionary expenses (non-essential goods or services) and take care of Ant Expenses. Having more money on hand will give you greater stability and financial security; it will also help you have an emergency savings fund.