I own an IT consultancy firm. Currently, I have a few credit card and loans and am finding it difficult to pay the monthly installments. Is debt consolidation a better option?

The process of debt consolidation loan allows borrowers to coalesce all debts with one single loan to help manage payment easily with one solo monthly installment and at preferential interest rates.

Indeed, debt consolidation loan could be an effective process and a relieving decision. Studies indicate that this way the average monthly installment is reduced by 30 per cent of the current monthly obligations.

When you need to divide money among payments of several cards and loans it certainly becomes difficult to manage the financials and is stressful. Considering your situation, I would suggest you speak with existing loan or card providers and negotiate on the interest rate or bail out process. If the calculation doesn’t work out well, list all debts paid monthly and calculate the total sum of debt you need to consolidate. However, comprehend the DBR ratio, as it must not surpass 50 per cent of your annual income.

Based on current bank lending policies, debt consolidation loan for self-employed is limited to a few banks. Therefore, you would need to ensure you have a clear repayment history on your current borrowing as per Al Etihad Credit Bureau so you have a better prospect to avail the facility. Also, the critical element to understand is the interest/profit rate of the new loan and repayment terms. Ensure you are clear about all aspects of the debt repayment and as this should not act as another trauma for you later.

In the UAE, there are few private companies who could act on your behalf to represent your case with different lenders to ease your process. Also, they may negotiate the terms with new lenders better to make the settlement more beneficial for you. This process will be more feasible to maintain healthy financial discipline. This is also a better option if you’re having trouble keeping track of various monthly payments and managing your finances.

[Here is how you can get started on financial planning]

Despite all this, debt consolidation is a long-drawn process. It requires a firm commitment to a new settlement structure and determination to follow it during the tenure of the loan. You must comprehend the opportunities and work harder towards the goal. If you can do this then debt consolidation loan can help to become debt-free sooner.

Dhiren Gupta, managing director of 4C Mortgage Consultancy, is a financial expert. Got a problem? Our fantastic panel of renowned experts is available to answer all your questions related to fashion, well-being, nutrition, finance and hypnotherapy. Email your queries to friday@gulfnews.com.