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Millions of Poles have made financial liabilities. So you can say that many of us live on credit. As long as we are aware of the consequences of each commitment, we can cope easily with repayment. However, if we treat the loan only as a source of quick cash, and we do not think about where we will get funds for timely payment of installments, problems can quickly arise. What’s more, the dynamically changing financial situation does not give us a guarantee that today the trouble-free repayment of receivables will be like that in a few or several years.
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As you can read for consolidated debt relief, debt consolidation combines all current debts. Currently, in many institutions, we can consolidate not only loans but also loans, and even popular payday loans, which we have problems with the most.
So if we decide to take this step, we must carefully analyze our situation and check where and in what amount we have obligations. This is necessary to determine the amount of the consolidation loan, if any, to cover our debt. Of course, it would be ideal to take a consolidation loan in the amount that will cover all our liabilities.
We can apply for a consolidation loan at a bank or non-bank institution. IMPORTANT – When we try to consolidate, the bank takes into account the fact that we have debt and can be said to agree. However, what is often the deciding factor is our credit history. While even a large debt does not preclude our chances, numerous delays in repayment already do. Why borrow money to someone who does not comply with the contract. That is why it is good to decide on a consolidation loan relatively quickly – even if we have difficulties paying back and we are barely paying the home budget, but we are still paying off our debts. Then we have a much better chance of a consolidation loan in the bank.
When we know about the amount of credit we want to apply for, we must submit an application with detailed information on the debt we want to consolidate. After conducting the analysis, the bank will issue a financing decision. If this is positive, the bank repays our debts indicated in the consolidation application. What does this mean for us?
The bank does not transfer funds from the consolidation loan to our personal account. The consolidation loan aims to repay the debt. To avoid any problems, the bank transfers funds directly to the accounts of our current lenders. In this way, along with the decision granting a consolidation loan, we get rid of the debt, and we only have one installment of the new loan to pay. Moreover, the granting of a consolidation loan involves a re-analysis of our financial situation. Due to the fact that consolidation is associated with an exceptionally long loan period, we have the chance to adjust the monthly installment amount to our current financial capabilities. This means that the consolidated installment may be significantly lower than the sum of all individual installments that we have paid so far. All this sounds very encouraging. However, probably everyone is well aware of the fact that the bank makes money by borrowing money. This is neither bad nor even more strange. However, this raises another question – is a consolidation loan worth it?
Increasing debt is affecting more and more people
Probably not one person has found that excessive debt is not so difficult. Due to the fact that we live from month to month or we are simply not taught to save, every cost expenditure turns out to be a real problem. However, nowadays it is not that difficult to get extra cash. Many loan companies offer loans without formalities, so virtually anyone can get them. An installment of $ 100-200 will not weigh you down. Before we can pay off one loan, another loan is needed, and yet we still have to pay the credit card, the account limit used and the mortgage that has been accompanying us for years. Even a few seemingly low installments can be a challenge when combined. And not just hypothetical considerations. It turns out that it is a gray reality that is reaching more and more people.
Financial institutions are also noticing the growing debt of millions of Poles. Therefore, they adapt their offer to the needs of the market and potential customers. One of the products to help you get out of the debt loop is to be a consolidation loan. I think all of us have heard the name before. However, not everyone knows how it works and what it is used for. Therefore, we will try to answer what consolidation loans are and whether consolidation pays off.
What is a consolidation loan?
Before we get to the question of whether consolidation pays off, let’s say what it is. The simplest words that come to clarify the concept of consolidation are the combination of all current liabilities into one loan. Of course, this is quite a simplification, but it allows you to visualize this product quite well. However, we are interested not only in theory but also in practice. That is why it is necessary to develop this concept a little and say step by the step consolidation loan.
Is consolidation profitable?
As in many cases and the question of whether consolidation pays off is not a clear answer. To decide if a consolidation loan pays off, let’s think about how much it will cost us.
We can immediately say that the consolidation loan is not cheap. On the contrary, due to the borrower’s difficult financial situation and high lender risk, this is one of the more expensive products. The interest rate proposed by the banks may amount to 7%, and may even reach 20%. Everything is determined individually based on, among others what commitments we want to consolidate. In addition, there is usually the maximum extended loan period, and thus the interest repayment period, which decides that consolidation is not cheap.
But, there is one but. A consolidation loan is a product addressed primarily to people in debt. The maximum extension of the loan period is the main assumption of the consolidation loan. It aims to reduce the monthly installment to the amount that will be repayable to the borrower, and thus allow to get out of the debt loop. A significant reduction in installments is often the only chance for paying off debts on time. And this is the key to answering the question of whether a consolidation loan pays off.
When we consider taking a consolidation loan, it usually means a difficult financial situation, excessive debt, excessive installments, and related repayment problems. At this point, therefore, our interest will be to reduce unit costs, and therefore monthly costs. In turn, the maximum extension of the loan period will not make the consolidation loan cheaper – only the monthly installment will be cheaper but that is what we care about the most. IMPORTANT – We must remember that repayment, even a seemingly expensive commitment, will be cheaper than failure to repay at all and generating interest on late repayments. What’s more, too long a delay in repayment is also a risk of the case being referred to a bailiff. At this point, costs are rising drastically, practically overnight.
We cannot always afford to evaluate a loan and its assessment as a whole. It may turn out that the only way out of financial problems is for us to reduce the monthly installment. In turn, consolidation, which is not cheap, can help. For us, however, this is the only way out and certainly cheaper than growing interest on late repayment. Therefore, the question of whether consolidation pays off depends primarily on the individual situation of the borrower. Of course, also when applying for a consolidation loan, you should look for the best offer and not decide on the first better commitment. However, we cannot say unequivocally about the consolidation loan in itself that it pays off or not. Everything depends on the current situation.
Is consolidation the solution for me?
Is consolidation profitable if we struggle with excessive debt and have a problem with too high a monthly installments and we are threatened with interest on late repayment? Absolutely. Thanks to the reduction of the monthly installment, repayment of debts will be much simpler, and often it will be the only chance to pay your debts on time. What’s more, mental peace and the awareness that we can handle all installments is a rescue not only for our portfolio but also for our health.
Is a consolidation loan worth it if our goal is only to organize our finances and repayment dates? It is necessary to calculate exactly how much the repayment of all loans and borrowings will amount to us, and compare this amount with the total price of the consolidation loan. If we do not care about extending the loan period, and maybe even want to shorten it, consolidation can still be profitable. However, if we reduce the monthly installment too much and thus extend the loan period, consolidation may be more expensive. It is, therefore, necessary to carefully analyze what we want to achieve through consolidation.
If you’re wondering how to avoid falling into the debt loop or maybe worse trying to get out of it, a consolidation loan is a noteworthy option. Whether consolidation pays off depends not only on its price but first and foremost on our situation. It will allow us to avoid unpleasant consequences, which will certainly be much more severe for us.