Steps Involved in Successfully Accomplishing Debt Consolidatio

Debt consolidation is an ideal solution for entrepreneurs who are struggling with multiple business debts. Many people identify it as the right way to resolve their financial burdens at the thriving stages of business. However, you need to think smart while putting all your efforts into it. Doing solid homework is mandatory to accomplish this successfully.

Your primary goal would be to get a solid loan which is offered at a lower interest rate over a longer repayment period. By successfully getting both these advantages together, it becomes much easier for you to crack your debt chaos over time. With proper planning, you can easily attain success with debt consolidation in a step by step process. Further we will discuss the major points that entrepreneurs need to take into account when thinking of  consolidating their debts.

Step 1: Calculate your exact outstanding debt

This is the most primary step you can take towards debt consolidation for preparation. You may have a lot of loans scattering around, and you need to compile them all and make a comprehensive list to identify various aspects of each.

Once you made an all-in-one list, next you have to find out the total amount that you need to pay off for each loan if you close them immediately. While doing this, calculate the capital amount with the interest to get an all-inclusive figure. Some loans may be having penalties on premature closing, which you also need to check.

Once you get all the calculations for your existing loans, you can add up the values to get a final amount which you have to have in hand if you need to close them altogether. This exercise will help you stay away from the debt consolidation traps.

Step 2: Figure out the prepayment penalty

As discussed above, many of the loans may have been approved once you agreed to the prepayment penalty terms. Prepayment penalty is an additional fee which you have to bear if you close a loan before the full tenure. The lender may take this penalty from you to make up for the losses incurred upon not getting the additional interest amount that they could have received over the full term.

Usually, the whitepaper of the loan agreement has all these details, but most people lose patience and sign the documents even before reading them thoroughly. You have to read through those fine prints again if you want to go for debt consolidation to close these pending loans altogether. If the penalties are too high, consolidation may bring you more trouble than peace. If this is the case, you may have to avoid such loans while going with the rest of the loans.

However, while doing these, you must calculate the benefits and loss over a longer term to decide how much it will actually ease off your burden on paying off multiple interests vs. paying for a single loan.

Step 3: Full and final calculation

The final calculation of your consolidation loan amount will be based on the total amount that you will need to pay if you close all loan accounts together. If there are any pre-payment charges, these also need to be added to the final amount. It is not mandatory to consolidate all your loans while thinking of debt consolidation. You can leave some of existing low interest loans that you can pay on your own.

Step 4: APR Calculation

There are many factors which may confuse you. Some of them include:

• Interest rates
• Terms of loans
• Amortization frequency
• Interest calculations

However, in reality, the interest rates and payments may differ a lot, in which APR is the actual measure you need to be aware of. There are many APR calculators available, and you can use those to understand the exact loan terms. It will help you to know whether the loan consolidation will actually work for you or not.

Step 5: Explore the options

Once you have calculated the final loan amount, you can think of availing the best possible consolidation loan. Once your home work and initial calculation is over, you may have to surf through various possible loan options to identify which one may work the best for you. There are many private lenders, banks, credit unions, SBA loans, short term lenders etc. that offer various consolidation avenues which you need to explore in depth.

Upon planning for consolidation, you can collect multiple quotes and identify which option is the most suited and profitable for you. As a business owner, you may not have enough time to do all these types of intensive researches and surveys. So, if needed, you need to employ a reliable and expert financial adviser who is an expert in loan consolidation. They will also help you to avoid pitfalls in novice debt consolidation. In any case, this baseline research is very important to take you to the next level. At this next level, you have to:

• Compare APRs

Once after the research, you need narrow down your search to one of the best debt consolidation option, and then compare the proposed new loan APR against the existing APR.

• Preparation of amortization schedule

For the new consolidated loan, you have to prepare a new amortization chart. You may get the exact amortization rates from the provider’s handbook to do this part well.

• Applying for loan

You can next move on and apply for the new debt consolidation loan. Make sure that you have done all the calculations before moving on to this level of application. You can see all your research efforts turning up to be fruitful at this stage.

You may surely get the loans approved instantly upon submitting a proper application. After getting the big sum in hand, you may tend to skip a bit by redirecting it to some new business plans, but remember, financial discipline is a strict need at this point. If not careful, you may end up with a further complicated debt situation which can drown you altogether.