Debt reunification: how it works, advantages and disadvantages – Loan Consolidation

The reunification of debts by means of a loan is an option that opens a way of financing to those families with accumulated debts that affect their economic capacity and capacity to repay their own debts. In these situations, debt reunification loans can alleviate the family’s economic situation in the short term.  See hellven.org for an observation

How does debt reunification work?

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The reunification of the debts is a financial operation that allows the applicant to unify all the existing debts in a single loan in order to reduce the amount of the monthly installments, thus facilitating an improvement in the conditions and allowing the applicant to have more liquidity.

Thus, the reunification of debts allows us to group all the commitments that we have been acquiring and that are pending payment, such as the mortgage, a personal loan, and credit card debts, for example. In this way, we would have a single debt equivalent to the sum of all the previous ones and with a single monthly payment.

The most common format for a debt reunification is through a loan with mortgage guarantee, in this type of loan a house is included as collateral so that the entity has a guarantee against possible default of the new loan. The best loans and credits for debt reunification have an interest rate between 5% and 14%.

These loans can be obtained by going to a bank, a financial credit institution or private financial intermediaries. An example of a private financial intermediary is E-Money that offers home equity loans for the reunification of debt, with the condition that the home is free of charges, another characteristic quite common in this type of loan.

Another format that we can find would be that of a personal loan at a higher interest rate, these are offered by companies such as Good Finance, a financial credit institution whose loan for debt reunification has an interest rate of 13.90% TIN.

Advantages of debt reunification

Advantages of debt reunification

  • Renegotiate the terms of your current loans in installment, installment, interest rate or all of them.
  • Knowledge of the situation: by maintaining a single debt we are more aware of what financial situation we are in.
  • A single installment and interest rate.
  • A single entity to negotiate with.
  • Comfort: we are not waiting to pay several debts at the same time.

As we can see, the advantages of reunification are directly linked to the fact of grouping our debts into one. By unifying our debts, we have a greater knowledge of it and it is much easier to control its evolution. A single loan implies a single installment and interest rate and a commitment with a single entity with which we can negotiate on all our debt and not on a part of it as we would in case of having several debts contracted with different entities.

In addition, the reunification of debts will allow us to face the installments in a longer period of time. This has its advantages and disadvantages because the fee to be paid will be less than paying various loans separately, but the Interest payable will end up being higher, assuming a similar interest rate.

Disadvantages of debt reunification

Disadvantages of debt reunification

As we mentioned, the most common format for the reunification of debts is through a home equity loan, this means that we will have to include in most cases a home as collateral, which we could lose in case that we cannot meet the loan payments. We have also commented on the possibility that the interest that we end up paying will be greater than what we would pay without making the reunification.

Finally, we must bear in mind that the reunification of debts and loans entails a series of expenses that must be analyzed before making the decision to request such reunification. Among the expenses of the reunification of debts that must be faced, we find several costs of processing and formalization such as:

  • Commission for early cancellation of the mortgage and other loans.
  • Notary fees, registration, and taxes (in the case of reunifying modifying a mortgage loan).
  • Possible commission to open the new loan.

As we can see, making a debt reunification may not be free, so we must analyze our specific situation to assess whether or not this option suits us and take a look at the conditions of the loans we want to group.

Debt reunification is therefore presented as a form of financing, as an escape route for those families who are struggling at the end of the month. Care must be taken and the operation thoroughly analyzed, but the possibility of reducing the amount of fees and the possibility of having more liquidity at the end of the month, make the reunification of debts and loans an option to consider.