What to do when we are over-indebted – opportunities – Consolidation of Loans


Contrary to appearances, your excessive debt is not on the bank’s hand. Even more so to you. I assume that when you make the decision to take a loan, you rarely think that you may lose control over your future commitments.

Under what circumstances do we most often fall into excessive debt? Well, certainly when we spend or invest too much in relation to our current earnings. Also when we misjudge our ability to pay our debts in the future (e.g. we do not take into account that our income will decrease, we lose our job and we do not have any savings that will constitute a financial cushion). Thirdly – we take a lot of small loans, which distorts our perception of all debt.

So what should you do if your financial obligations to banks have exceeded their regular repayment capacity?

Debt restructuring – what does it involve?

Debt restructuring - what does it involve?

Banks want you to pay all your installments regularly and without problems. They are obliged by law to pursue absolutely any liability – in this way the interests of capital owners (mainly holders of bank accounts and deposits) are protected. For this reason, they are ready to modify the terms of the loan to eventually recover the money.

What can the bank agree to as part of restructuring our loan? One option is to suspend the repayment of installments for a specified period of time needed by the debtor to “catch his breath.” The bank is able to suspend the repayment of interest, repayment of principal or both components of the loan. The details of this operation (including the duration of the suspension period) are each time negotiated individually.

A much more common solution is to spread the debt over a longer period. Thanks to this, the monthly installment is lower and does not burden the budget so much. Banks agree to this type of modification much more willingly, if we additionally supplement the security of our loan (e.g. mortgage on real estate).

In both cases, open communication with the bank will be crucial – inform your advisor about your problems and their impact on your ability to pay liabilities.

A consolidation loan

A consolidation loan

One way to significantly reduce your regular credit burden is to combine them all into one loan – the so-called consolidation loan. It is a very practical solution for people who have several types of loans (e.g. for a car, renovation of a flat, debt on a credit card, etc.), also in various banks.

The task of the consolidation loan is to repay previous liabilities and reduce the installments of the new liability. How it’s possible? Most consolidation loans are granted for a long period (i.e. the monthly installment may be lower), and in many cases, it is necessary to secure it, e.g. on a mortgage on real estate. This reduces the risk, and thus costs for the bank, and reduces the interest rate and monthly installment for the customer.

Consumer bankruptcy – what is it about?

Can an individual go bankrupt and thus free himself from excessive financial obligations? In 2009, the law entered into force, which allows the so-called consumer bankruptcy, which is a form of announcing “bankruptcy”.

In practice, very few customers of banks with credit problems decide to take advantage of this option. Why? The court will allow you to declare consumer bankruptcy only if you lose your ability to pay financial obligations in exceptional circumstances. Unfortunately (or fortunately), they do not recklessly take consumer loans for various whims.

The procedure itself is quite long and complicated, and consumer bankruptcy will not absolve you from having to pay debts. You will first need to cash all your assets, let you take up part of your income and – in most cases – continue to settle your backlog.

How to pay off debts? 6 ways for your debts

How to pay off debts? 6 ways for your debts

It all depends on what debts are about, but always, regardless of the circumstances, it is worth taking appropriate steps so that the debt does not grow and does not cause even greater problems. Here are some ways.

1. Negotiate with a bank or loan company.
2. Do not take out more loans to pay back previous ones – you will quickly fall into a debt loop.
3. Give up all unnecessary expenses.
4. Analyze, record, save and monitor all your monthly expenses very carefully.
5. Consider taking on extra work that will bring extra income.
6. Get acquainted with the offer of consolidation loans, thanks to which you will change all your installments into one lower one. 

The surest way to free yourself from excessive debt is to open negotiations with the bank. Most financial institutions are interested in amicable debt recovery and can agree to a debt restructuring that is favorable to us. Taking an advantageous consolidation loan from the same or another bank can be an effective move, thus reducing regular charges to our budget.

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