There are several factors that cause someone to go into debt, such as to meet family needs, business capital, to being compelled to buy various goods because of their lifestyle. If that’s the case, sometimes debt can pile up so that life feels stressful.
However, you don’t need to worry about dealing with debt problems. Because, now there is a debt consolidation system implemented by domestic banks.
Actually, what is the meaning of debt consolidation? To be clear, let’s follow some ways to make your debt payments lighter.
What does debt consolidation mean?
Debt consolidation means an attempt to combine several debts or loans into one loan. This debt consolidation effort is usually carried out by the bank who will make changes to the financial structure of the debt itself. If it has been converted into one loan, then you can then make several payments on the various types of debt that you have.
Who benefits from debt consolidation?
In this case, in fact both the debtor (debt owner) and the bank as the debt lender are equally profitable. How did it happen? First, at the time of debt consolidation, you are the same as making a new loan, but with a larger nominal loan fund which is certainly profitable for the bank. Second, the advantage from the debtor’s side is that you can provide lower monthly loan installments over a long period of time.
How does it work?
The way debt consolidation works can be done in several stages, including:
- First of all, you can go to the creditor or bank and explain about the various types of debt that you must repay.
- The creditor will then offer a solution so that you can consolidate your debt. One way is with a new form of financial loan.
- After you make a new loan, you will start making regular debt payments. You can pay via credit card or come directly to the bank.
- The creditor will offer a certain percentage of interest which is usually smaller than the interest on the previous loan.
- The debt installment funds that you deposit to the creditor or bank will then be used to pay installments on several types of items. For example, the bank will arrange installment payments for motorcycle loans, mortgage installments, luxury car loans, property purchase installments, and so on.
What needs to be considered in debt consolidation?
A debt will certainly be better if you pay it off immediately. However, if you don’t have enough funds to pay off several types of debt, then debt consolidation can be one way to reduce the burden of paying your installments. Therefore, before consolidating debt, there are several things that you must pay close attention to, such as the following:
- Make sure the interest on the new loan in debt consolidation is light enough because you will pay off debt installments in the long term.
- Debt consolidation cannot erase the previous debt. You still have an obligation to pay debts which will later be regulated by the bank or creditor.
- Furthermore, debt consolidation also does not mean debt settlement. In debt consolidation, you still have to pay installments. As for debt settlement, it means you don’t have to pay installments again. Sometimes, if you can’t pay debts, creditors or banks confiscate various kinds of valuable objects, vehicles, or other property so that your debt is considered paid off.
That’s an explanation of how debt consolidation works. Hopefully this method can reduce the burden of expenses in your pocket. And, of course, don’t get stuck in debt more.