Consolidation of excessive debt


What should we do when we pay off loans and loans, and the loan installments turn out to be too high and we have problems regulating them?

The worst situation is to hide your head in the sand and wait until the problems resolve themselves. They will not solve themselves, you can be sure. In the current situation, immediate action should be taken and an attempt should be made to restructure the debt. How can it look like? There are several options, but the way it is handled depends on the situation of the indebted person.

Indebtedness resulting from several loans and credits

In this case, it is best to think about a consolidation loan. Consolidating loans is not a complicated process. One should only look for all loan agreements, which will then have to be presented to the bank.

Consolidation of bank loans and loans is simply the repayment of all loans and credits with another loan. This is called consolidation loan. What gives us consolidation of loans? First of all, the installment of such a loan will be lower than the installments of all loans that we have repaid so far. It is possible by extending the repayment period.

Example: We are currently paying back 3 credits: – cash 4 years, – installment 2 years, – credit card debt 12 months. We are taking a consolidation loan for 5 years and we are repaying our obligations. In this case, the repayment of existing loans (which we no longer have) would have been extended by: – ​​1 year, – 3 years, – 4 years, respectively. Consolidation covers cash loans, car loans, installments, housing (mortgage), consolidation, account limit and the mentioned credit card loan.

We can have credits and loans at various banks and it does not matter how many such liabilities we have.

Types of consolidation loans

We distinguish two types of consolidation loans: cash and mortgage. The first one is similar to a cash loan . The interest rate should be slightly lower than the cash loan in a given bank, and the repayment period is a maximum of 10 years. A mortgage consolidation loan is a loan secured by a mortgage on real estate. It can be either a real estate that we pay with a mortgage, or a property that is our property or third parties (who agreed to “credit” the loan). Such a loan is cheaper than a mortgage loan and allows to significantly reduce the loan installments, by extending the repayment period to even 30 years.

Cons consolidation loans

This consolidation solution also has its downsides. Like every loan, anyway. A consolidation loan in general is a more expensive solution than the situation if we would normally pay off the existing liabilities. Reducing the installment is the effect of mainly extending the repayment period. And that means we’ll pay more interest. Secondly, the new loan is also the interest on the loan and other costs (eg loan insurance). In addition, it may also be necessary to pay a commission for early repayment of existing loans (it is worth checking the records in loan agreements).

In the case of mortgage loans, there are additional fees for the court (entry to the mortgage) or a fee for property valuation.

Creditworthiness and consolidation

As with every loan, also in the case of loan consolidation, adequate creditworthiness is required. Therefore, not all persons will be able to use the loan. If we have a negative credit history , we can forget about crediting in a bank. Not everyone also has property in the form of real estate that could become collateral for a consolidation loan.

Negotiations with the bank

It seems the simplest solution, but it is not so often used. What’s more, we prefer to use a company offering debt restructuring, and which will do the same as us, but with the important difference that we will have to pay for such a service. And not a lot of money. If a consolidation loan is impossible to obtain, you must independently attempt to get along with the bank. Certainly it will not be easy, but it is necessary to take such actions. Do not wait until the delays in repayments are so large that the bank will take appropriate interventions by sending requests for payment. Your negotiating power will then be close to zero.

When you see that it is harder and harder to settle loan liabilities, let the bank know that such temporary difficulties have occurred. The bank can take several actions. First of all, he may propose to temporarily suspend the repayment of the loan, e.g. for a period of 1-3 months. It can be a total break or a partial break.

Total loan repayment suspension

It might seem that such “credit holidays” is a very beneficial solution. Banks agree, however, not very willingly, and if they agree, for a short period of time – up to three months at most. In addition, this solution also costs. Suspended installments are added to the capital and after such “credit holidays” the installments will be simply higher than before the suspension of payments.

Partial suspension of loan repayment

By choosing this option, we will pay only interest. Please note that indebtedness in this case will not decrease at all, and the amount of the installment will also not change dramatically. If it is a “fresh” loan repaid in equal installments, interest is the majority of the installment paid. Another action is to extend the loan repayment period. It’s hard, we’ll pay more for a loan (interest on capital), but we’ll get liquidity for it. And it is always possible to repay the loan faster if our situation improves enough that it will be possible.

Remember! There is no out-of-the-way situation and you can save yourself from any credit problems if you act quickly. You can not wait that “somehow it will be” and the situation will fix itself.

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