Debt Consolidation

Debt Consolidation aims to reduce monthly charges on multiple loans, through negotiation, aiming to reduce the costs of credit (one interest rate and a more favorable maturity).

The easy temptation to resort to credit often contributes to the accumulation of several loans, taken out from one or more financial entities, with different charges and which often lead to uncontrolled indebtedness. This results in a high rate of effort that impedes the granting of new credits and jeopardizes the personal financial solvency of the players.

Nowadays the offer of credits available on the market is large and may involve: home loans, consumer loans, credit cards, car loans, etc. Short-term loans and small amounts, such as credit cards and consumer loans, are the most penalized as they usually have higher interest rates.

Debt Consolidation what is it?

Debt Consolidation results from the combination of several credits in one, with the objective of reducing monthly charges with multiple loans, achieved through the negotiation of a single interest rate and a more favorable maturity.

How to get Debt Consolidation?

One of the ways to lower the financial charges and the effort rate of a private individual or company, is to renegotiate the existing credits, combining them into one, with better conditions and lower monthly financial charges. The way to achieve this goal involves:

  • Reduce the overall interest rate on loans, since individual rates, namely those for small consumer loans or credit cards, are heavily penalized.
  • Another option that can be used in the Debt Consolidation operation is to increase the maturity of the consolidated loan, extending the amortization period and thus obtaining a lower interest rate. The combination of short, medium and long-term loans in a single contract and in a single maturity makes it possible to reduce the overall interest rate on credit.
  • When there is a mortgage loan, this is an operation that can be done with the bank where the loan is located, trying to lower the spread and offering in compensation the domicile in that bank of the loans contracted with other banks or financial entities.
  • Credit consolidation can make use of an additional option: the use of a property mortgage.If a mortgage already exists on that property, as long as its value is higher than the existing mortgage, this option is still valid. A mortgage loan generally has a lower interest rate, which can reach up to 3% -5%.

When the debt is spread over many credits, coming from different entities and with different modalities, the Debt Consolidation operation can reduce the monthly installments between 20% to 40% and up to around 60%, with mortgage credit)!

What are the advantages of Debt Consolidation?

The most obvious is the reduction in monthly financial commitments, achieving financial health that excessive debt does not allow.

The second has to do with the granting of new credits, especially if a mortgage loan is involved. Whenever a bank evaluates a loan application, one of the first measures is to assess the applicant's credit risk. To do this, it begins by evaluating one of the most important indicators: the Effort Rate. Now the consolidation of loans, by reducing the monthly installments of existing loans, will allow the reduction of this rate, facilitating the approval of the new loan and enabling better financing conditions.

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The effort rate is an indicator that measures the weight of financial expenses in the total household income and is used in the risk analysis.

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