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Debt consolidation: how exactly does it work?

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You probably already heard about « debt consolidation », also known as credit repair in the US. How exactly does it work? A debt consolidation, consists in getting a consolidation loan from a bank, in order to pay off all your debts. Why is it convenient and what is the process for it? Let’s have a look.

Regrouping your debts

A debt consolidation will give you the possibility to reimburse several financial commitments with only one payment thanks to a new loan. You could see it as if the bank pays off your debts. That’s why it is also known as credit pay off in Switzerland.

Only one monthly payment

Considering that the bank will reimburse your debts on your behalf, you will then have to make a unique payment to them instead of several reimbursements each month. Having only one payment to do will help you manage your budget and reduce the risks of late payments! If you don’t make more financial commitments that you can’t repay, all your debts will be paid off quickly and you will be able to keep a good credit score.

A lower interest rate

A debt consolidation can be a very interesting option if you have unpaid commitments with a high interest rate (credits cards for example, come with an average interest rate of 20%). By getting a new loan with with a lower interest rate, you smartly optimise your debts repayment. Many types of debts can be regrouped in a consolidation loan. If you have a doubt, you can ask you bank and they will be able to tell you precisely which ones they can repay or not (credits, credit cards, leasing, mortgage,…).

Who can benefit from this alternative?

What should you do to get a debt consolidation and what is the eligibility criteria? Just contact your bank or a credit agency in order to get a free and non-binding analyse of your financial situation. If you don’t quite fit the criteria, they will be able to advise you and redirect you towards a more suitable solution.

  • To have a good enough credit score (not too many late repayments).
  • To have a stable income so you can manage the consolidation loan.

Where to find this financial service?

Do you wish to get a debt consolidation in order to simplify your budget and increase your saving capacity? Do not hesitate to compare various offers on the market! For a first exclusive contact, click here. Prestaflex-Service is a credit repair specialist in Switzerland.