House loan installment, installment of the loan for the purchase of the machine, revolving credit cards and other consumer loans, all together, can sometimes overload the consideration that a consumer must pay monthly to meet all the positions in an exaggerated manner. outstanding debts. A solution that can be evaluated in these cases is debt consolidation. Let’s find out what it is.
What is this debt consolidation?
Debt consolidation is a financial product that a person can use if he already has other loans and/or loans. By virtue of consolidation, all outstanding debt situations can be extinguished, incorporating them into a single new loan and paying a single, single monthly installment. In practice, therefore, accessing debt consolidation enables several debts of a smaller amount to be merged, with medium-high rates to be settled in a short time, in a single debt with a long-term maturity and at more advantageous rates.
Consolidation can have a variable duration: from a few years up to a duration of twenty years, or 240 months. Precisely the possibility of extending the amortization plan, having a long time for the balance of the new loan, makes it possible to obtain a reduction in the amount of the monthly installment compared to the total amount of the previous individual monthly installments.
The objective of debt consolidation is in fact to simplify the repayment of debts, not overloading the monthly installment load, making the monthly payment lighter, and therefore again sustainable for the debtor. Not to be underestimated is also the advantage of having to manage the payment of a single loan and having to deal with only one financing institution.
Who can apply for debt consolidation?
Although debt consolidation is thought of as a solution for those who are in financial difficulty and need to reorganize their financial situation, it is also important to consider that we are still talking about a loan, a “re-financing”. The credit institutions, therefore, have the right to verify the creditworthiness and economic stability of the requesting consumer.
Among the key requirements that must in fact be assessed in order to access a loan or a loan for consolidation, we must certainly consider the level of income (often decisive element) and the creditworthiness of the applicant. It is also true that the criteria for accessing consolidation also change according to the institution to which one is addressing, but there are basically essential requirements to possess, namely: to be in possession of regular and documentable income, enjoy good job stability (public or private employees, self-employed workers and pensioners) and not to have prejudicial transcriptions, protests or negative reports as a bad payer.
How is consolidation done?
The consolidation request can be presented to banks or credit institutions, even different from those to which the original mortgages and loans were requested. Debt consolidation can be obtained from the applicant in three different forms, each with different characteristics.
- Personal loan: generally has a maximum limit of 60,000 USD and has the highest interest rates, given that it does not rely on any real guarantee. It usually has an average duration of about 10 years, but given the lack of a concrete guarantee for the bank or the credit institution, it is the most complicated to obtain for the applicant.
- Consolidation loan: in this case, the bank or the credit institution, to guarantee the disbursed loan, will place a mortgage on a property owned by the applicant. Representing a safer solution for the bank or institution, the consolidation loan will have a lower interest rate, a longer duration, and will allow obtaining more consistent liquidity.
- Consolidation with the sale of the Fifth: this is the most widely used solution, as it can also be granted in the event of previous financial difficulties and reports as a bad payer. With the sale of the Quinto, in fact, the bank or the credit institution, are absolutely protected as they will interface directly with the applicant’s employer or pension institution and, in the payslip or on the pension slip, the monthly fee of the applicant will be automatically reduced by one fifth to cover the loan installment.
Are consolidating debts convenient?
This is a question to which there is no single answer, but it is necessary that each debt situation is assessed on a case by case basis. Certainly, the requests for consolidation of debts have increased over the last few years, above all due to the increase in consumer loans – of short duration and with high-interest rates, for the purchase of cars or other assets – and for the dissemination revolving credit cards, which can cause debts to be accumulated very quickly.
Our advice is to evaluate well before using the credit instruments, which involve, among other things, preliminary costs and initial costs, especially to avoid any situations of over-indebtedness. Contact us at Good Finance for a check-up of your economic and financial situation; we will help you choose the best way to get rid of debts, taking into account your needs and your real economic capacity.