A range of options are available for a borrower encountering difficulty in paying off his or her debts, and among these options, a borrower can choose from either debt consolidation or debt restructuring. Discerning which option to exercise, though, is at your discretion. But will it not make things easier if you were to decide between the two, knowing the intricacies of both available options?
Defining Debt Consolidation and Restructuring
In comparing the two repayment alternatives, debt consolidation involves combining a slew of unsecured debts into a single loan, while debt restructuring is the alteration of an existing debt obligation’s terms of agreement.
Take, for example, how with Rapid Loans in New Zealand, you can use an online personal loan to simplify your repayment options for a number of debts, such as credit card debts, a car loan, or cash borrowed from friends and family. This method is an example of consolidation.
Debt restructuring, on the other hand, can be a tactic used by companies having outstanding financial obligations to take advantage of lower interest rates. By declaring how they are lacking in financial resources, a borrowing company will still have to pay the lender — only that, upon agreement, a different repayment method will come into play.
The Differences between Debt Consolidation and Restructuring
Through the amalgamation of unsecured debts, debt consolidation leaves the borrower with a single monthly payment at a specific interest rate, bearing the intention of clearing a single loan. Its difference from restructuring is in the repayment solution; debt restructuring involves negotiating a new agreement in repaying a loan that one is having difficulty in clearing. This is why there is the need for refinancing a loan and modifying interest rates.
Debt restructuring can work for the borrower and it can even hurt the lender. Given how restructuring is a viable tactic, a lender may take it as a course of action just so he or she receives payment for the principal. A borrower will often choose consolidation not as a tactic to get ahead, but as a way to make repayment options more convenient.
Now that you know the difference when it comes to clearing your debts through a loan, be sure to know the details of your agreement, and as much as possible, avoid missing your monthly dues to avoid financial stress and trouble.