When your business falls into a lot of debt, it can be stressful and scary. Dealing with many creditors at a time can also be exhausting. If your company is in such a situation, it may be time to consider consolidating your debt.
What Is Debt Consolidation?
Debt consolidation is essentially the process of combining multiple lines of credit, that you may have, into a single one. It is typically done by taking another new debt consolidation loan to close all the older existing ones, so that you now only have this one loan to pay off.
It makes sense to consolidate your debt only if you are eligible for a business debt consolidation loan at a lower interest rate.
That will help make your monthly EMI payments more manageable, in the event of your cash flow drying up due to factors outside your control. However, if you have a really poor credit score it is better to wait until your credit has improved a little.
How A Business Loan Can Help You Consolidate Your Debt
You can avail a business loan to consolidate your business debt. Simply approach banks or non-banking financial corporations (NBFC) to do so. There are several advantages to this:
- Lower Interest Rates: Consolidating your debt goes a long way to reduce your interest rates, particularly when you avail a business loan to do so. Though you may pay more in the long term, your monthly dues reduce enough for you to be able to pay them. With credit cards, particularly, the interest rates tend to be pretty high, and it can max out your cards if you miss payments.
- Single Creditor: When you have many creditors, it can be pretty difficult to prioritise your payments. However, when you consolidate your debt with a business loan, you only have to deal with a single creditor. This makes it infinitely easier and more convenient to make payments.
- Improve Your Credit Score: Since debt consolidation allows you to pay off all your existing debts early, it generally improves your credit score. Moreover, provided you keep paying the EMIs of the business loan you took for debt consolidation on time, your credit score will continue to rise. Since business loans often have affordable interest rates, you will have to pay a lot less on your EMIs.
- Easily Accessible: Business loans are easily accessible, as they often require very little paperwork. Moreover, if you avail them from certain NBFCs they may come with extremely short approval periods of just 24 hours. This adds to their accessibility, and improves your chances of getting the money quite fast. Thus, business loans are a great option to consider, if you need to consolidate your debt.
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