Getting into a financial crisis is easy (and often fun), but it can be painfully difficult for a business to meander its way out of the problem. It can take a few weeks to be neck-deep in debt and may take decades to pay off that debt.
However, irrespective of your financial woes, there are tools and opportunities designed to help you achieve financial freedom, even in the midst of a national financial crisis.
To help make a decision on the best financial tool to help recover from a financial crisis, here are five financial tools to consider.
1. Debt Refinancing
Debt refinancing is a tool for debtors to apply for a new loan that has better terms than their previous loan. Proceed from the new loan is used to pay off previous obligations.
To benefit from debt refinancing, then the new loan should have an interest rate that’s smaller than the interest on previous debts. But quite often, such low-interest long-term loans are hardly issued to bad credit borrowers, which is often the case with businesses and individuals in financial crisis. However, it’s still possible, only if you have an understanding of the technicalities involved. A lot of things you need to know about applying for long-term bad credit loans is written in this article by Best Loans for Bad Credit, so you should get down to it.
2. Emergency savings
Handling your business in a crisis can be difficult; as such, you need to always have an emergency fund. If you fall within the number that has emergency savings, then your business can make use of that money till it finishes or you’re out of the crisis.
Bankruptcy is a legal process through which people or other entities that cannot afford to meet their financial obligation to their creditors seek relief from all or some of their debt. It is the least desired alternative by financial experts, but it might be the most reasonable option for your business.
A bankruptcy court is involved in the process, and your business may lose its assets if they’re liquefiable by the bankruptcy trustee in charge of the case. Another demerit of this method is that it has a very drastic effect on credit score, report, and history, and a poor credit score can affect your business. For example, in the advent of a problem that requires a loan, the chances of securing one are very slim.
4. Debt Management Plan
If your financial crisis is caused by having too many unsecured debts, then this might be a worthy solution. With a debt management plan, you can clear your debt at a reduced rate or with waved fees. To use this method, you’ll have to make a single monthly payment to credit counselors, who will then distribute the money to your creditors.
A major demerit with this financial tool is that your credit card account will be closed, and you’ll have to stay without any credit card till you’re done paying the plan. Although this tool has no negative effect on your credit score but closing your credit card account does.
It’s also imperative that you follow through with your monthly payments, as missing payments will knock you off the plan.
5. Debt Settlement
Also called debt negotiation, debt resolution, and debt reduction is this financial tool that has become increasingly popular. Here’s how debt settlement works.
Debt settlement companies will ask that you put your debt payments in their account, thereby stopping all payments to your creditors. As you fall further and further below payment, the debt settlement company approaches your creditors for negotiation. Due to the fear of getting nothing at all, your creditors may accept a smaller lump-sum offer while they forgo the rest.
However, a demerit with adopting this method is that it doesn’t stop your creditors from harassing you or filing legal action against you while negotiating. It’ll take about four to six months for the settlement offer to begin, and the process might take years, depending on how much you owe.
Financial crisis can be debilitating to businesses, especially those that don’t know the financial tools available to help them recover. After reading this article, you should know some nuances that can help you if you’re in a financial crisis.