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<p>For those who carry several loans and as many monthly payments, end-of-month finances can be difficult; debt consolidation* proves to be an interesting option to give themselves a bit of breathing room. Before getting started, however, it is important to be well advised.</p>What is behind the notion of debt consolidation?
The procedure is well known in the banking sector, and debt consolidation is also referred to by the expression regrouping of credits. The operation consists of merging all of one’s current loans into a single loan. They are consolidated by a single banking institution. Different types of loans are involved: mortgage loans, consumer loans, overdrafts, etc. It is also possible to include debts such as late rent or unpaid bills. The measure appears as a strategically relevant lever on a budgetary level. The adaptation and the reduction of the subsequent monthly payments indeed promote better management of one’s finances. To discover the savings achievable by this approach, performing a debt consolidation simulation is recommended.
Why and how to simulate the consolidation of your loans?
If debt consolidation results in reduced monthly payments, it simultaneously lengthens the repayment period. To avoid any future difficulties, please prepare your project in advance. This is where a simulation tool reveals its full potential. Let us take the example of the credit calculator offered by Floa**. The approach, which combines speed and practicality, takes place exclusively online. In order to obtain a reliable estimate of your new borrowing conditions, various financial details must be provided. The monthly payments and the interest rate are among the inputs. To optimize the simulation, consider having your latest pay slips, your amortization tables, and a recent proof of address with you. The simulation is free and without obligation. By comparing different refinancing solutions, you have all the cards in hand to intelligently plan your debt consolidation.
A closer look at the pros and cons of debt consolidations
Consolidating all your loans into a single borrowing: the measure can be appealing when you feel overwhelmed by all your credits. If real benefits are associated with it, it must nevertheless be considered with some caution.
Clear advantages for saving on your loans
A debt consolidation offers the opportunity to have a new financing plan. The repayment installments associated with each loan are brought together into a single monthly payment. Its amount tends to be lower—the reduction achieved can reach 60% of the cost of the merged installments. Opting for such a solution seems relevant if you want to rebalance your finances. You gain peace of mind with budgeting that is more secure and serene. Late payments and other overdraft fees are more easily avoided. You also gain additional latitude to launch a new project. Another positive point is the fact that you will have only one bank as creditor. In this way, only one borrower’s insurance is needed. With Floa, you also have no processing fees to pay.
What are the cautionary points to keep in mind?
If debt consolidation results in a reduction of monthly payments, the repayment period is extended in return. Be sure to carefully evaluate this aspect as well as the amount of your monthly payments before using this option. The aim is to prevent any extension of your debt and, consequently, the increase in the total cost of your borrowing. Note, furthermore, that specific fees are associated with debt consolidation. Mention, among others, the early repayment penalties (IRA). If you have doubts about the feasibility of your project, seek the advice of a professional such as a credit broker. Their expertise will be welcome to optimize each parameter and to gain an overall view of your financial situation.
In what circumstances does debt consolidation appear to be advantageous?
Different contexts are likely to push toward debt consolidation. The approach is, for example, feasible if your bank refuses to renegotiate an ongoing loan. In the realm of consumer loans, various situations may push you to want to group your credits. The taking out of several revolving loans constitutes a textbook case. The high interest rate characteristic of this type of borrowing often makes debt consolidation a prudent recourse. Some life events also contribute to strengthening the appeal of such a move. This is notably the case when one is about to become a parent. The same applies if you are in the process of a divorce or if you are a young retiree.
Bringing your credits together into a single formula proves relevant on several aspects. In addition to reducing the amount of monthly payments, the management of your budget will gain serenity.
*A loan engages you and must be repaid. Check your ability to repay before committing.
**Floa – a public limited company with a share capital of €72,297,200 – Registered office: Immeuble G7, 71 rue Lucien Faure, 33300 Bordeaux – RCS Bordeaux 434 130 423. Subject to the supervision of the Prudential Control and Resolution Authority (ACPR) 4 Place de Budapest, CS 92459, 75436 Paris. ORIAS No.: 07 028 160 (www.orias.fr).
All our information is, by nature, generic. It does not take into account your personal situation and does not constitute personalized recommendations for the realization of transactions and cannot be equated with financial investment advice, nor with any incentive to buy or sell financial instruments. The reader is solely responsible for the use of the information provided, without any recourse against the publisher Cafedelabourse.com. The publisher’s liability of Cafedelabourse.com cannot in any case be engaged in the event of error, omission or inappropriate investment.
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