Debt consolidation can be a very useful financial strategy, in that it rolls multiple debt accounts into a single, lower-interest monthly payment. There are some considerable advantages to consolidation, including the fact that your total indebtedness can be reduced, and that making a single payment each month is much easier than keeping track of numerous debt accounts.
When debt consolidation is advantageous
Debt consolidation is not always the best approach to handling your financial affairs, but there are certain conditions which make it highly beneficial for you to consider debt consolidation. Generally speaking, your total debt should not exceed 50% of your total income, and your credit history should at least be good enough that you might qualify for a low interest loan.
If you have bad credit history, and you are unable to obtain a low-interest debt consolidation loan, you may not be able to achieve any real savings on your monthly outlay. If you’re a small business owner, your cash flow should be positive enough that it can cover the monthly payments of a debt consolidation loan. If all these are true, and you have a legitimate commitment to avoid running up serious debt in the future, then debt consolidation may be right for you.
When debt consolidation is not advantageous
Many people view debt consolidation as a lifeline that will help them avoid drowning, and in some cases it can serve that role, but there are also many times when it’s simply not the right answer. For instance, debt consolidation will do nothing to address an underlying problem of the excessive spending that generated all that debt in the first place.
If yours is a situation where you’re drowning in debt, and making reduced monthly payments won’t even make a dent in your total indebtedness, debt consolidation simply is not the answer. Debt consolidation is also probably not the right path to take if your total debts are significantly more than 50% of your total income, since mathematically you simply won’t be able to catch up. When debt consolidation is not advantageous for you, you will have to seek other options such as some kind of debt relief.
Having debt issues?
There are times when debt begins to pile up on a small business owner through unforeseen circumstances, and what’s really needed is an infusion of cash to relieve the pressure of that debt. Contact us at Proactive Funding Solutions to find out if there are some options we can make available to you for overcoming your temporary debt issues.