September 26, 2017 | By RGR Marketing Blog

When Is Debt Consolidation Right for a Business?

Despite the recent upswing in the economy, scores of businesses remain overwhelmed by debt. So, if you’re working with one of those business owners, they can take solace in knowing that they’re not alone. Still, having such high debt can add excess stress to life, and unfortunately, the credit system is not designed for those suffering from high amounts of debt to succeed. Things like high interest rates make it almost impossible to catch up.

Thankfully, there are options available to help you get such people from under their debt. One way is through debt consolidation, which is where you come in. In this guide, we take a closer look at debt consolidation so you can help businesses decide whether or not it is the right solution for them.

What Is Debt Consolidation?

Debt consolidation aggregates all of a business’s unsecured debt into one amount. Unsecured debt consists of credit cards, medical bills, business credit loans, and other business-related debts. Instead of paying five, six, or more bills separately every month, debt consolidation allows the holder of the debt to pay one single payment.

The benefit of having one payment is that it helps a business owner avoid mistakes and missed payments, which can be easy to do when they’re dealing with a lot of unsecured creditors.

3 Types of Debt Consolidation

There are three different types of debt consolidation available for people to choose from – debt consolidation loans, debt settlement, and debt management plans. It is important to note that none of these options offers a quick resolution to your debt problems. Each one is a long-term financial strategy that is designed to help them get out of debt. These strategies accomplish this by:

  • Reducing overall interest rates
  • Reducing monthly payment to one payment

These three combine to help a business reduce their debt quicker than by only making their usual monthly payments to each creditor.

Debt Consolidation Loans

A debt consolidation loan is a fixed-interest loan that’s borrowed for the total combined amount of business owner’s credit cards and other unsecured debt. The interest on this loan is usually much lower than what they’re currently paying. But, debt consolidation loans aren’t perfect and they do have some drawbacks.

For instance, the repayment period may be longer than one might expect. That said, it is definitely an option worth looking into.

Debt Settlement

Debt settlement is an option in which business owners get assistance (from a business like yours), to negotiate a lump sum payment for their debt with each of their creditors. This amount will be lower than what they currently owe, so it will help them pay less for their overall debt.

But, this option also has its challenges. For starters, not every creditor may agree to a lump sum payoff. Another problem is that debt settlement can have a negative impact on their credit rating, but they can always ask their creditor to report the debt as “paid in full” so it doesn’t. No one should be surprised if they refuse.

Debt Management Plans

A debt management plan is considered among experts to be the ideal means of paying down debt. This option requires a business owner to speak with a credit counselor at a non-profit credit-counseling agency so they can determine how much money they can afford to pay their creditors every month.

The agency will negotiate with creditors to reduce the interest rate and to waive late fees. Their debt will be consolidated so they only pay one monthly payment to the agency, which then disperses the money to creditors. Like the other options, debt management can also reflect negatively on one’s credit report, but after they complete the program, they will be free of debt and their credit score will rebound quickly as a result.

There are few things as stressful as being overwhelmed by debt. And, debt consolidation could be a viable option for helping a business owner regain control of their runaway debt. Of course, these options do come with their pros and cons, so as long as they understand what they are getting into and determine the reward is worth the risk, then choosing the right debt consolidation option will help them get to where they want to be – debt-free.

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