Debt consolidation can be an effective way to reduce your monthly payments and at the same time benefit from better credit conditions and lower interest rates. But what is actually behind the term “debt consolidation” and how does it all work? In this article, you will learn everything you need to know about the topic Debt consolidation loan and how you can save money every month.
What is debt restructuring?
Debt restructuring is the replacement of one or more current loans with a new loan. The new loan is used to pay off the old debts and replace the existing loan. The aim is to reduce the monthly installments or to benefit from more favorable conditions.
How does a debt consolidation loan work?
A debt consolidation loan is a special loan that is designed specifically for the purpose of debt consolidation. The process is quite simple: you look for a new, cheaper loan offer and use it to pay off your existing debts. One advantage: by combining several loans into a new loan agreement, you can often improve the overview of your finances.
When does debt restructuring make sense?
Debt consolidation is particularly useful if you are currently paying high interest rates because your loan with variable interest rates has increased or if you have several loans with different terms. Debt consolidation can also be a good solution if your financial situation has changed and you need a lower monthly payment, for example.
The advantages of debt restructuring
Debt consolidation offers a variety of advantages that can help you noticeably improve your financial situation. Here are the most important aspects that make debt consolidation so attractive:
You can lower your monthly rate
The biggest advantage of refinancing is the opportunity to significantly reduce your monthly payment and benefit from lower interest rates. By switching to a loan with lower interest rates or by extending the loan term, the burden can often be significantly reduced. This means that you have more financial flexibility each month that you can use for other things. Especially if you have several loans with different terms and interest rates, refinancing can ensure that you have more money in your pocket at the end of the month.
You will receive interest savings through debt restructuring
Refinancing can also lead to significant interest savings. If you have an older loan agreement with high interest rates, switching to a new loan with more favorable terms can ensure that you pay significantly less interest over the entire term. This interest saving adds up to a considerable amount over the years and can significantly reduce your debt burden. It’s like getting a discount on every interest payment date – and who doesn’t like a discount?
Several loans can be combined
If you have several small loans with different banks or credit institutions, debt consolidation can be used to bundle all of these loans into a single loan agreement. This has several advantages: You only have one monthly payment instead of several, which makes your life much easier. In addition, by combining the loans, you often get more attractive terms because you can negotiate with a higher loan amount. This simplification not only gives you a better overview of your finances, but can also mean that you pay less interest overall. On top of that, you can increase your loan if you wish.
How to calculate debt restructuring
Use the debt consolidation calculator
With a Online loan calculator you can quickly and easily calculate whether refinancing is worthwhile for you. You simply enter your current credit conditions and immediately receive an overview of your costs and possible savings.
Austrian online loan calculator from finaplus
How much does debt restructuring cost?
Refinancing involves costs, such as processing fees for the new loan or prepayment penalties because you are paying off the old loan early. Is refinancing worth it? You can only determine this if you include these costs from your old bank in your calculations.
Examples of savings
For example, if you have taken out a home loan of EUR 250,000 with a term of 20 years and your current variable interest rate is 5%, you will have a monthly repayment of EUR 1,671.72. The total cost of your loan is EUR 401,213.
If you now receive a fixed interest rate of 3.7 percent through clever debt consolidation, your monthly loan installment will only be EUR 1,492.51 and the total costs will then be EUR 358,202. So you will save a whopping EUR 43,011 over the entire loan term and have EUR 179.21 more available each month. To be fair, this calculation does not take into account the additional costs of debt consolidation. Nevertheless, this calculation example shows that loan consolidation would be worthwhile.
Refinancing a loan: How to apply for a refinancing loan
Applying for a debt consolidation loan is similar to applying for a conventional loan. You compare different offers, choose the best one and submit all the necessary documents to the bank. Careful preparation is essential here.
Bring in a financing expert for debt consolidation loans to help
Especially when it comes to complex financial issues such as debt restructuring, it can be very helpful to get professional support. A financial advisor who specializes in Debt consolidation loans knows the current market conditions, helps you find the best offer and increases the chances of being accepted.
Documents and requirements you need
For a successful debt restructuring, you usually need the current loan agreements, proof of your income and possibly other documents that the bank requires to check your creditworthiness. Make sure that all documents are complete to avoid delays.
Three tips on how to refinance cheaply and successfully
- Compare multiple offers: Be sure to use a Online loan calculatorto compare different loan offers.
- Pay attention to the additional costs: Check the total costs, including possible prepayment penalties.
- Get expert advice: A Debt Restructuring Financial Advisorcan help you find the best deal for you and avoid mistakes.
Conclusion: Is debt restructuring worthwhile?
Debt consolidation in Austria and Germany can help you reduce your monthly installments and benefit from better conditions. If the additional costs that arise do not “eat up” the advantage, then it is very clever to switch to a loan with better conditions. If you are unsure whether debt consolidation makes sense for you, make a non-binding and free consultation with an independent financing expert on the subject of debt consolidation and taking out a new loan. This one is highly recommended: Financial advisor debt restructuring (for Austria)
Apply for a loan online
If you have only taken out a small loan amount in your current loan agreement, you can also apply for a cheap loan online. You can find an online loan comparison for Austria here and one for Germany below.
Online loan comparison for Austria
Online loan comparison for Germany
FAQs – Frequently asked questions and answers about debt restructuring
Is it worth refinancing a loan?
Yes, especially if you pay high interest rates or have several loans that you want to combine for better terms.
How much does it cost to refinance a loan?
Processing fees and prepayment penalties may apply. However, these costs should be offset by the savings from the new loan.
Which loans can be refinanced?
In principle, almost all loans can be refinanced, including consumer loans, instant loans, construction loans, home loans, real estate loans, mortgage loans, car loans and installment loans.
When is debt restructuring not possible?
If your loan agreement provides for a so-called “non-repayability” or the prepayment penalty is too high, refinancing a loan may be uneconomical.
Can I refinance at any time?
Yes, in principle, debt restructuring is possible in Austria at any time, but you should pay attention to the terms of your current loan, especially possible early repayment penalties and the notice period.
How do I find the best debt consolidation offer?
To find the best debt consolidation offer, check the remaining term of your loans and simply compare different offers online. Pay attention to the effective annual interest rate and any fees. If you find a good offer, you can apply for it directly online and have the old loan paid off. You should then make an appointment with the new bank to discuss and finalize the final details of the new loan. Independent debt consolidation financial advisors such as finaplus.
