All the latest news, facts and tips from the team at Pioneer Credit Connect

Dec 17

How To Use a Business Loan To Consolidate Personal Debt

by Matthew Ikin
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Debt consolidation seems to be a finance buzz word whereby most lenders are offering cost savings solutions for customers to consolidate several loans into one; and rightly so, seeing as it can help reduce the stress of paying higher interest rates across multiple loans and repayments.

Just like most financial products newly released to market, as debt consolidation has become more popular, banks and other financial providers are busily working to come up with new and innovative ways to better present this offering to the customer. So what does this mean for you? Often, lower rates and more flexible loan repayment options, while for some it can mean new ways to consolidate various types of debt that were not possible in the past. After all, debt consolidation as a concept can be restructured to apply to different customers, which is commonly known as personal loan consolidation.

Today, we want to cover one of the new ways that customers can consolidate their personal debts if they already own a business. If you don’t own business or want to skip to the chase, see what you can save by consolidating any kind of debt here. We’re ready and willing to help you consolidate at any stage of your life.

Why consolidate your debts

Before we leap into how a business loan can be used to consolidate personal debt, let’s have a quick overview of what debt consolidation is. Put simply, debt consolidation is the process of grouping multiple debts that have different interest rates, balances and repayments, into one easy to manage monthly payment. The goal of this is to take the stress out of managing multiple accounts and potentially access lower interest rates that could put savings in your pocket.

Traditionally when consolidating debts you would take out a loan that is of the same value to the total of your outstanding accounts. With the borrowed funds you are able to pay out your outstanding debts, leaving you to pay off the remaining loan with a stress-free, simple monthly repayment. As an example, credit cards typically have high interest rates when compared to other personal loan products, meaning that you could consolidate your credit cards using a personal loan with a lower rate, freeing up that extra cash as potential savings.

So that you can see how much of a difference consolidating your debts could make, here is an example of one of our customers who consolidated her debts this year (2017). By looking at her outstanding personal debt, Jess found that she was paying $25,955 a year for her personal loans and credit cards. Jess started searching for answers and come across Pioneer Credit Connect. After speaking with the Connect team, she was able to consolidate her debts into one – with some amazing cash savings!

Debt consolidation example

By consolidating these five outstanding accounts into one personal loan, Jess was able to reduce her monthly repayments from $2,162 to $826. With reduced repayments, she was able to better manage her weekly budget as well as spend the extra savings on a much needed holiday!

How to use a business loan to consolidate personal debts:

Being the sole owner of a business means that you not only get to take advantage of profits, but are also responsible for the debt of the business. Whether a debt is under your name or under your business’ name, there is still an obligation on your to pay the account off one way or another.

To use a business loan to consolidate your personal debts, your small business would firstly need to obtain a business loan. From there, this business loan can be used to pay off your personal debts, given you own the business. It is now up to the business to repay this business loan, and seeing as you are the business is under your ownership, the responsibility to for the business to repay this is still in your hands.

Most lenders require the amount of the business loan to exceed that of the value of the debts you want to consolidate. This means that after the personal debts have been repaid, the business will have some left funds that it could put towards purchasing equipment, inventory, marketing or working capital; it’s up to you. For example, if you have $15,000 in personal debt that you would like to pay off, the business loan would need to be for around $20,000, allowing your business to use the extra $5,000 for growing the business.

The Checklist:

What you need to consolidate your personal debts with a business loan:

  • A personal debt that you would like to consolidate
  • Be the director of a business that has been operating for 6 months or more.