If you have time trying to pay off a loan and you feel that the debt does not decrease, you have probably considered requesting a larger loan to pay off those previous liabilities.
Although it is true that it is not healthy for finances to get one debt to pay off another, or cover one hole by making another (as the saying goes), there is an option that can help you get out of a complicated situation, without affecting your history in the credit bureau.
Consolidating your debt will allow you to obtain better conditions to settle your financial commitment. Not only with a better interest rate but also in a shorter period of time.
In a scenario of high inflation and a rise in the reference interest rate of the Bank of Mexico (Banxico), the cost of loans will increase, so it is important to improve the conditions of a loan.
What is debt consolidation?
It is common to have problems with credit cards, since by not paying the total for the month, the bank begins to charge interest, commissions and penalties, which can be up to 90%, causing pain for your pocket.
Consolidation is the “refinancing (of your debt) without the need to fall into a restructuring or without affecting your credit history,” explained Rubén Chávez, SEO of Yotepresto.com.
“You can do it with your own bank, or with a new bank. The issue is that consolidation is the renegotiation of the conditions of the current debt, mainly the issue of rates and terms”, added Alberto Vázquez, administrative and accounting coordinator of the electronic commerce and logistics company Melonn.
Consolidating your debt with better conditions can save you several thousand pesos in interest payments, the specialists consulted agreed.
According to Rubén Chávez, 80% of the people who approach Yotepresto.com to refinance their debt through a personal loan, do so to get out of problems with the payment of their credit cards (TDC), with rates of average interest around 18%.
“The 1,150 million pesos that we have lent, lowering the rate (of interest) to people, have represented, more or less, a saving of 300 million pesos in interest,” said the CEO.
One of the points of debt consolidation is that they are fixed-rate loans with terms ranging from six to 48 months.
How to choose the best option?
Before contracting a personal credit to relieve some debt, there are some aspects that you have to take into account, explained Alberto Vázquez, director of Melonn.
The point to review is the total annual cost (CAT), which includes interest, plus commissions and administrative expenses. It is also important to be clear about the term and type of guarantee, such as joint and several liability and endorsement, mainly.
“When debt consolidation is done, it has to be a tailored suit, and it all depends on your ability to pay. You always have to take into consideration how much (money) you are going to receive in the future, how much you can pay and how much of your budget, between 10% and 15%, allocate to pay off the debt”, Alberto Vázquez pointed out.
Lending institutions, banks and fintechs evaluate the income you receive, the expenses you have, as well as how good a payer you are. Based on these points, they can offer you better conditions.
“Financially speaking, the amount of the debt is not so critical. The issue is the capacity you have to pay debt services, that is, the capital plus interest,” Vázquez stressed, while pointing out the importance of comparing various options —banks and other financial institutions— before signing a contract. .
Last but not least, check that there are no penalties for payments or early settlement, and do not wait to fall into default, if you calculate that you are not going to pay a debt, start looking for refinancing options.