Debt Consolidation is known for the procedure of Refinancing, in which a person takes out a loan to pay off the previous loans, liabilities and another consumer. It generally involves a debtor and a creditor who convey their loans using favourable payoff terms. This payoff terms include lower interest rate or lower monthly payment. In this process, investments don’t erase the actual debt but help in transferring the consumer’s investment. Financial institutions, like banks, offers loan to the creditor and general public.
Debt settlements focus on reducing consumer’s speculation instead of creditors. In this type of process, the lender uses the amount of the first loan to pay off the other existing debts. The borrowers apply personal loans to pay the additional debt in time. Debt consolidation aims at reducing the creditors, whereas the debt settlements focus on lowering the owed debt by any lender.
Work Of Debt Consolidation:
Debt consolidation is a process which helps a customer to pay off their all liabilities using different forms of finance. When a Consolidation loan money lender is under pressure with many kinds of debts, they take loans from the financial institutions to consolidate their debt. The very first step that a customer needs to take is to apply for the debt consolidation loan. A customer can also use different private mortgage companies to pay off their debts and liabilities. It also increases the potentiality of collecting the asset or money from a debtor. Credit Unions play a very crucial role for the general public in the payment of other specialized debt consolidation. For the customer, who haven’t qualified for loans may take loans from Debt Settlement?
Reasons to apply for a Debt Consolidation:
- It helps to pay off the debts quickly- Debt Consolidation helps the consolidation loan money lender to clear all is debts more affordably. Repayment of debts also benefits the existing instalments.
- Debt Consolidation confers up to Rs. 25 lakh- It focuses on consolidating the repayment of debt up to Rs. 25 lakhs.
- Helps in creating a detailed budget- Debt consolidation doesn’t only help in repayment of debts or loans but also helps to create a detailed budget that includes day-care, pet food, clothing and others.
- It also confers online access- A money lender can manage their loan regarding any debt consolidation from their home, or from anywhere through the internet. They can check their EMI schedule by secured online access without visiting the branch.
- It has affordable eligibility criteria- We all know that managing debt is quite hard, but customized loans make it easy, affordable and eligible for a customer. The eligible customer can apply for debt consolidation. It only requires the customer’s salary receipt, KYC documents, Employee ID, Bank account statements and IFSC code.
- Debt Consolidation also helps in accessing fund- Personal loans don’t take much time to approve your bank loan. Is the best way that It helps a money lender to tackle their debt before the deadline.
- It is a fixed payment- It becomes quite hard for a money lender to pay off the debts when they are dealing with multiple loans. A single consolidation offers them to pay all of their obligations within no time.
- Sets financial goals- Debt consolidation mainly aims at setting business goals which include repayment of debts with a low rate of interest. There are two keys of business goal, i.e. Short-term goal and long-term goal.
- Avoids taking of additional debt- A single liability can pay off the existing debt of any money lender. So, there is no need for taking loans frequently.
- Aims at reducing tax- If the consolidating loan is with any assets like car, land etc. then it will help the moneylender in lowering the tax.
Types of Debt Consolidation:
There are two types of Debt Consolidation-
- Secured Loans- A secured loan is a type of loan in which the borrower promises some assets such as car, property or land as concomitant for the taken loan. Thus, the debt is wholly secured. If the borrower refuses of unable to pay the mortgage, then the creditor can take off his concomitant asset to regain his money.
- Unsecured Loans- It refers to that type of loan where the borrower doesn’t keep any asset as collateral. Unsecured loans are also known as Individualistic loans. If the borrower cannot pay the mortgage, then the lender can take legal actions against the borrower to get some of the debt.
Advantages of Debt Consolidation:
- Debt consolidation is more useful for those who have multiple loans or debt to pay.
- It also helps in boosting your credit score.
- Debt consolidation reduces the tax if the consolidation loan secured with an asset like land, car or property.
Disadvantages of Debt Consolidation:
- There is a potential loss involved in rebates and Interest rate discounts.
- Sometimes, debt consolidation services charge monthly fees.
- It doesn’t provide any debt relief.
Debt Consolidation in Singapore-
There is a massive variation of consumer debts from country to country. In Singapore, Debt consolidation plan designed to help the customers to pay down their outstanding debts. This plan helps the citizens of Singapore to avoid the increase in outstanding debts so that the customer can bear the cancellation of any fees that may arise at the time of refinancing. This plan is recommended to the lenders only when the debt exceeds 12 times their monthly salary. A money lender can get only one Debt consolidation plan at any one point of time.
In the year 2017, an association of banks has announced in Singapore and especially for the Singaporeans who face difficulty in several high-interest debts. If any lender faces a challenge in refinancing their mortgages, an association named as Credit Counselling Singapore (CCS) helps them to address their problem and facilitates debt payment arrangements. This association also raises credit scores of the citizens of Singapore over long-term loans. The moneylender can only pay outstanding balances like personal loans, overdrafts etc. They can also apply personal loans to pay off their outstanding.