Debt consolidation works by combining most or all of your outstanding debts into a single monthly payment, which is much easier to manage, and often carries a lower interest rate than some of the individual debts you had. There are two ways to accomplish a debt consolidation, one being to obtain a balance-transfer credit card which offers zero interest or low interest for a set promotional period. The other consolidation method is to obtain a low-interest, fixed-rate personal loan which would be used to pay off all outstanding debts, and then pay the relatively lower amount of the personal loan. Here is how you can determine whether debt consolidation is right for your circumstances.

When debt consolidation works

The most important requirement of any debt consolidation plan is a firm commitment to avoid incurring some of the same debts all over again, because then you’ll have to make your consolidation payment, as well as any new debts you acquire. As a general rule of thumb, debt consolidation works when the following are true: the total amount of your outstanding debts is less than 50% of your income, your incoming cash flow is adequate to cover debt payments, and your credit score qualifies you for either a zero-interest or low-interest repayment loan.

When debt consolidation doesn’t work

While debt consolidation can be an extremely useful vehicle for returning you to sound financial status, it doesn’t really work in all situations. For instance, if you are absolutely overwhelmed with debt and have no hope of recovery with your present cash flow level, consolidation just won’t work. Debt consolidation is also not really worth your while if you have a small debt load in the first place and can easily pay it off in less than a year. For situations like that, you’re much better off to simply increase the amounts of your debt repayments to disburden yourself more quickly.

When the total of your outstanding debts is more than half of your total income, that is also a scenario which will not be advantageous for debt consolidation. In a case like that, you’ll have a better chance of achieving sound financial status through some kind of debt relief, which would lower or eliminate at least some of your outstanding balances.

Debt consolidation with Vankeith Commercial Capital

If you are considering debt consolidation, please contact us at Vankeith Commercial Capital, so we can explore ways that might be advantageous to your situation. Our financial experts can help you get back on your financial feet with a plan that works for you and your business.