You Need to Know About Debt Consolidation

Debt consolidation loan is the process of combining all of your unsecured debts into a single monthly payment. This might be done with a debt consolidation loan .debt consolidation loan The loan is used to pay off your debts, then you pay off the new consolidation loan rather than dividing your payments to your creditors. You may be able to take out a debt consolidation on your own using a home equity loan or a debt consolidation loan from a bank.

Common Methods

Consolidating with a home equity loan can be risky since your unsecured debt comes secured by your home. If you can't afford the payments, your home could be foreclosed. That wouldn't happen if your unpaid debts remained on separate credit cards.1

If you hire a debt consolidation company, your loans may not necessarily be consolidated with a loan. Instead, your debts would remain separate, but your payment would be consolidated. You send one monthly payment to the debt consolidation company, then that company divides your payment and sends it to all your creditors.

It Does Not Reduce Your Debt

After  consolidating your debt, you may feel like your debt burden has been lifted. However, it's important to remember that you still have the same amount of debt as before. Now, instead of having multiple accounts to pay, you have just one. This may ease the stress of managing multiple payments, but it doesn't mean your debt has lessened.

Pros and Cons

Debt consolidation is generally beneficiary  only when the final consolidated debt has a lower monthly payment or interest rate, or both. While this makes it much easier to afford your monthly debt payment, it's often achieved by lengthening your repayment period. You'll ultimately end up paying on your debt longer than if you'd left your debt unconsolidated. The longer repayment period also means you'll also pay more total interest on your debt.

Be Alert

The debt consolidation industry is full of scams. It's easy to run into a company that may push you to get a high-interest-rate loan that costs more in the long run than paying your debts off on your own. Other companies pocket your monthly payment instead of sending it to your creditors, leaving you with damaged credit. It's important that you evaluate debt consolidation companies and their products carefully so that you don't end up in a worse situation than when you started.2

Many people who consolidate their debt often end up with new debt within a short period after consolidating. What's worse is they have this new debt on top of the debt they've consolidated, which compounds the debt problem. It happens because consolidating debt often frees up available credit, and many people cannot resist using it. If you consolidate your debt, it's better to close your old credit card accounts and focus only on paying off your consolidated debt.

Alternatives to Debt Consolidation

Some debt consolidation alternatives may allow you to pay off your debt sooner and save money on interest in the process.

Paying Your Debt on Your Own

It can be more difficult, but you can evaluate your debt and funds available to pay off your debt and create a plan to pay off your debts one account at a time. You can choose one debt on which to focus a larger payment every month, while paying the minimum amount on the others. Once you finish off that account, move the amount you were paying to that one over to the next account on your list, and so on until you have paid off all of it.

Use a Consumer Credit Counseling Service

 Credit counselling agencies can negotiate a debt repayment plan with your creditors that reduces your interest rate and payment. You make one monthly payment to the credit counseling agency, and they pay your debt for you. You should still carefully investigate these services and make sure you only work with legitimate ones, however.3

Settling Your Debts

Debt settlement is a negotiating strategy where you pay your creditors a fraction of the outstanding debt to satisfy the account. Debt settlement might be a viable alternative if your accounts are charge off or in collections. You can do this on your own or through a company. This, of course, only works if you have the cash available to make one or a few large payments.

The Bottom Line

Debt consolidation is sometimes a good choice for getting yourself out of debt. But it's not the only option. Be sure you've thoroughly explored the alternatives and carefully researched any companies whose services you're considering. Otherwise, you could end up deeper in debt than you were before.

credit-thebalance

HOW TO PAY OFF YOUR ACCUMULATED BUSINESS DEBT

When you own your own business, you are constantly juggling things, including both your personal and business bills.

It can be stressful having to keep track of essentially two separate sets of finances for yourself and your business. Sometimes this juggling act leads to business debt. Other times you may be forced to take on business debt to launch new products, or grow your business. 

But, no matter the reason why you take business on business debt , it’s still stressful to have it hanging over your head. That’s one reason why it’s important to pay off business debt quickly.

Here are some tips to help you pay off business debt quickly.

1. Eliminate Unnecessary Spending

Similar to your personal debt, one way to help you pay off business debt is to immediately slash any unnecessary spending.

Examine areas where you are spending money every day that could be done away with, such as your morning coffee run. Take the extra few minutes of time needed to make it yourself, and you will be surprised at how much money you are saving each day. Even if you shell out for some fancy coffee makers for the break room at your office, it  can still save you money after a few weeks by not buying coffee elsewhere.

Cutting unnecessary business spending can help by allowing you to apply those dollars towards paying down your debt right away.

2. Call Your Creditors

If you need to get your business debt down fast, call your business creditors to see if they will work with you. For example, you could ask your credit card company whether or not they would help you out by lowering your credit card interest rate. This will help more of your money go toward paying off the balance instead of being eaten away by high interest rates.

Even if you think a creditor will say no, it couldn’t hurt to ask. It’s possible they surprise you by agreeing to help. Also, keep in mind it’s in their best interest to work with you. Companies you owe money to would rather work with you to get some money instead of having you file a business bankruptcy causing them to get much less or nothing at all.

3. Create a Business Budget 

Another way to help you pay off business debt in a timely manner is to create and stick to a  business budget. If you don’t already have one, it could be one of the reasons you are in a financial pickle.

Gather all of your bills and start with those that can’t be eliminated if you want to stay in business. Next add the others you consider necessary. Build your budget from here and put as much money as you can afford toward paying off your business debt.

4. Formulate a Plan to Increase Revenue

There are no shortage of ways you can generate some extra revenue to help pay down business debt quickly. While you are working on a plan, be cautious about sharing any of this information with anyone. Word of mouth can travel fast, and if you give even a hint that you are having any financial difficulties, it could hurt your business sales, contracts, and other agreements.

That being said, you need to come up with a plan to help you increase your revenue so you can get debt paid off fast. Here are some ideas that could help.

Have a Sale

Although you might be thinking now is the time you need to get top dollar for the goods or services you provide, you may be able to generate extra income toward your debts by having a sale.

If your business is in the service industry, offer incentives, such as a set amount that can be saved through increased business. However, if you sell products instead, mark them down and advertise a sale.

One of my student  did this to help pay of her business debt in 2015 and it helped her generate enough revenue to pay off N500,000 of business debt in a few short months.

Ask for Referrals to Get Extra Clients 

Offering your customers a discount for successful referral is one way to generate new customers and increase your sales.

For instance, if you are able to cash in on any of the referrals they give you, give them a 10% discount on their own bill.

5. Cut Charitable Giving

When your business is facing financial hard times, you may have to stop giving unnecessary discounts and eliminate your charitable giving, at least temporarily. Wanting to help others is a good and admirable trait. But, sometimes you have to think of your own business’ needs. When you free up extra dollars, it can help you get those debts paid off and ease your stress and tension. Once your debts are paid off, you can go back to giving to others.

6. Consider Debt Consolidation

One other choice for you to consider is debt consolidation. Sometimes you can combine more than one business loan or credit card balance into a single loan. By doing this, you may be able to obtain a lower interest rate to help pay your debt off faster.

Ezekiel Williams founder of DCIM Organisation , is paying off business debt she acquired a little over a year ago. He chose to consolidate her debt to save money and simplify his finances.

“I took a different approach paying down my business debt than I did when I paid off my consumer debt back in 2016.”Ezekiel Williams said. “I consolidated my business debt, that was spread out on several credit cards, into a business line of credit. This allows me to make regular payments every month and only pay around 7% interest, instead of the higher 15-22% interest rate on my credit cards. Plus, it’s much easier to juggle one payment every month instead of several different due dates.”

Ezekiel Williams said he also pays extra on his business loan whenever he has leftover money in his business budget. However, he knows that trying to be too aggressive with his debt pay off could leave him business account short of cash for operating expenses. He says so slow and steady is the way to go.

Make sure you do your homework before agreeing to a consolidation. This way you can make the best overall choice for your business needs.

Are you trying to pay off business debt? How are you making it a priority? please drop your comment. Thanks

credit-dueblog

CBN NOMINATED NISRAL MICROFINANCE BANK FOR COVID-19 LOAN

The coronavirus pandemic, has led to unprecedented disruptions to global supply chains, sharp drop in global crude oil prices, turmoil in global stock and financial markets, lockdown of large swaths movements of persons in many countries, among others. As a result of this and many other disruptions, the Central Bank of Nigeria (CBN) unveiled the N50billion Targeted Credit Facility as a stimulus package to support households and Micro, Small and Medium Enterprises affected by the COVID-19 pandemic. Below are likely questions and the answers on the application process for this facility.

1. Which financial institution do I apply to, to enable me access the targeted loan facility provided by the Central Bank of Nigeria?

Applications for the Targeted Loan Facility are to be made only to NISRAL Microfinance Bank an entity owned by the Central Bank of Nigeria, Bankers Committee and the Nigerian Postal Service. The bank has been nominated as the only financial institution through which applications for Targeted Credit Facility (COVID 19) Stimulus package are to be taken by the Central Bank of Nigeria.

2. Who is eligible to apply for this targeted credit facility?

(a) Households with a verifiable evidence of livelihood which has been adversely affected by COVID 19;

(b) Existing enterprises with verifiable evidence of business activities adversely affected by COVID 19;

(c) Enterprises with bankable plans to take advantage of opportunities arising from the COVID 19 pandemic.

3. Which commercial activities will be regarded as being eligible for the loan:

The following activities will be regarded as eligible opportunities in taking advantage of the crises;

(a) Agricultural value chain activities;

(b) Hospitality (accommodation and food supply services)

(c) Health (pharmaceuticals and medical supplies)

(d) Airline service providers;

(e) Manufacturing/ Value Addition Services;

4. How much of this N50 billion can I access?

The CBN through guidelines, particularly the CBN’s Guidelines for the Implementation of the N50billion Targeted Credit Facility has stipulated the following threshold as the maximum loan amount to be accessed by an individual borrower:

(a) Households can access a maximum of N3 million.

(b) SME’s can access a maximum of N25 million. This will however be dependent on the proposed activity, cashflow and industry size of the borrower.

5. If my application is successful, what interest rate/rates are applicable to the loan amount?

An initial all-inclusive interest rate of 5% per annum will be applicable from the time the loan is disbursed up until 28th February 2021. Subsequently from 1st March 2021, the interest rate will be 9%.

6. Can you provide information on the tenor of these loans?

The loan tenor is dependent on the application. Loans disbursed as working capital are for a maximum period of one year with no option for roll over. On the other hand, term loans are for a maximum period of three years with at least one-year moratorium.

7. What is the nature of repayment on these loans?

Repayment on disbursed loans will be by installments. The beneficiary and participating financial institution, during the application process must have worked out the modalities for the repayment schedule.

8. What does the application process involve?

The application process is straightforward and simple to enable quick resolution of applications in these difficult times:

(a) Applications are submitted online, directly to NISRAL Microfinance Bank.

(b) Applications are accompanied by the following:

–  borrowing entity’s BVN;

– business registration number (if applicable);

– business plan with clear evidence of the opportunity or adverse impact caused by the pandemic. (optional)

(c) After documents are submitted, NISRAL shall appraise and conduct due diligence.

(d) If the applicant’s documents are found satisfactory, NISRAL shall forward to the CBN for final approval.

(e) CBN will review and revert to NISRAL with final approval for disbursement.

9. Is my business required to pay any fees in applying for this loan?

No. Neither the CBN nor NISRAL charge any fees as processing fees in applying for this loan. In furtherance of this, the CBN issued a disclaimer on the 13th of April, 2020 asking members of the public to disregard requests for payment of any amount as processing fees for this loan.

10. When should applicants expect NISRAL to begin disbursements?

NISRAL released a statement on 15/04/2020 to the effect that disbursements to successful applicants for the TCF loan will begin in the week of 20/04/2020.

11. How long is the application process expected to take?

The CBN and NISRAL have communicated that applications are to be swiftly dealt with and applicants are to expect a decision on their applications in a timely manner. We will assume that timelines will vary based on several factors including completeness of documentation and others.

12. How soon will I receive the approved funds?

NISRAL indicated an intention to begin disbursements in the week of 20/04/2020. Successful applicants should begin to receive approved funds then.

13. Is the requirement to provide a business plan in the application process compulsory?

No. The requirement for a business plan is no longer compulsory and the requirement for payment of between N5,000 and N10,000 for a bank approved business plan has been dispensed with. Applicants may now submit loan applications without a business plan. NISRAL however noted that the inclusion of a business plan in an application will make the application process faster for beneficiaries.

14. Will I be required to provide a collateral for the loan?

Yes. The collateral to be pledged by the beneficiaries under the program may include the following:

(a) moveable assets duly registered on the National Collateral Registry; The National Collateral Registry of Nigeria is an initiative of the Central Bank of Nigeriato improve access to finance particularly for Micro, Small and Medium Enterprises (MSMEs). The Collateral Registry is pursuant to Part III of the Central Bank of Nigeria’s Regulations on Registration of Security Interests in Movable Property by Banks and other Financial Institutions (Regulations No, 1, 2015). It is currently operational and being used by borrowers and lenders alike. Simply put, the Collateral Registry is a web-based system that allows lenders to determine any prior security interests, as well as to register their security interests over movable assets provided as collateral.It facilitates the use of movable / personal assets as collateral that remain in possession or control of the borrowers and thereby improves access to secured finance. The registry can be accessed via ncr.gov.ng. 

(b) simple deposit of title documents, in perfectible state;

(c) deed of debenture (for stocks), in perfectible state.

(d) an irrevocable domiciliation of proceeds;

(e) two acceptable guarantors;

(f) personal guarantee of the promoter of the business;

(g) life insurance of the key-man, with NMFB noted as the first loss payee;

(h) and comprehensive insurance over the asset

credit- thecable

Disclaimer: Noting in this Question & Answer should be construed as legal advice from any of our lawyers or the firm. The answers are a general summary of developments and principles of interest on the subject of discussion and may not apply directly to any specific circumstances. Professional advice should therefore be sought before action based on any answer is taken.

What to know about Moratorium Period as a Borrower.

A With the country being in lockdown to contain the spread of Covid-19, you need to know how to approach your lender in order for you to keep your good credit history
A moratorium period, the technical term for a repayment holiday, is basically a length of time during which a borrower gets time-off from his or her loan repayments. That is, you as a borrower need not start paying your instalments or interest dues if you are granted a moratorium.

Why is it important?

Moratorium period effectively allows a borrower to postpone repayment of liabilities and help in planning his/her finances better. As a practice, banks and other financial institutions offer moratoriums to students taking education loans. As there might be a time lag between students completing their studies and getting a job, student loans usually a built-in provision for repayment holiday.

Similarly, some lenders offer moratoriums on home loans as well. For instance, SBI’s flexi home loan allows customer to pay only interest in the initial 3-5 years, after which flexible EMI payments begin. But in the current situation, banks are allowed to offer moratoriums on all kinds of loans for three months, without any such delay or default counting as a default or bad loan. Similarly, if you are running a business, in respect of working capital facilities, lending institutions are permitted to defer the recovery of interest applied (cash credit/overdraft) for this moratorium period.

While such repayment holidays are offered to give relief to the borrower, they come with a downside as well. Let’s consider the case of the current moratorium. While borrowers are not required to pay EMIs ( An equated monthly installment (EMI) is a fixed payment amount made by a  borrower to a lender  at a specified date each calendar month )or interest till the end of moratorium period, the interest will continue to accrue on their loan amounts. Effectively, folks who avail of the moratorium will end up paying extra interest to the bank.

Why should I care?

If you are among the individuals whose income has taken a hit due to the virus outbreak and the impact of the lockdown, then the moratorium may be a godsend. Your non-payment of interest or principal amounts during the period (base on the agreement) will not be considered as a defaults and will not affect your Credit history score. However, the interest accrued during this period can come back to pinch your pocket when the moratorium ends. The interest can be particularly high for personal loans and credit cards.

 However, borrowers need to check with their bank on the exact interest calculation and other terms and conditions.

The bottomline

Moratorium is only a reprieve and not a waiver. Ultimately, you’ve got to foot the bill. 

Copy of the Draft Letter to the Bank for Deferment of Interest, EMI & Term Loan Repayment:

It is important for any loan if you have availed.  Many banks are yet to come out with automatic deferment of EMI, for any kind of Term loan, Home loan, Loan against property, Business loan, Credit card, Bullet repayment or Interest on cash credit.

Hence, I am recommending for sending the deferment request to your bankthrough email. The draft format for the same could be on following lines*:

————————————

To,

Manager,

Xyz Bank Ltd

Address

Subject: *Deferment of Loan EMIs for Loan A/c #*

Dear Sir/Madam,

We are enjoying Credit Facility with your Bank viz Loan A/c No. #

However, due to nationwide lockdown and spread of COVID – 19 it has become difficult to continue regular and routine business activities.

Therefore, we request you to grant us three months’ moratorium period in our loan tenure starting from the EMI due in April and also for the months of May and June. We will start paying the EMIs from July onwards as usual and undertake to pay the 3 months Monotarium EMIs through an extended Tenure by three more months. It may be that the RBI has already announced the deferment option in all such cases.

We would be highly obliged if you consider this for us to have good business relationship.

We request you to please acknowledge and confirm the above.

Kindly note, we assure regular loan repayments as we have been doing in the past and appreciate your support extended to us for fighting the crisis that COVID19 pandemic has created.

Regards

Abc.

———————————————-

Hope you find this helpful,

thks & rgds –

credit- bankrate,bloombergquint