It is easy to contract several simultaneous loans, repaying them presents most of the time that few difficulties. Except that in the event of a fall in income, debts can become difficult or impossible to repay. We must then think about restructuring our debts. But what is a debt restructuring and how does it work?
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What is a debt restructuring?
A debt restructuring is an operation that consists of consolidating all its credits into one so that you only have to repay a single loan with lower monthly payments. The credits are bought back by a financial institution.
All loans are likely to be redeemed: real estate, car, consumer loans, overdrafts …
How does debt restructuring work?
To set up a debt restructuring, the financial institution will ask to put together a file including:
- A copy of the identity card
- Copies of all monthly income
- Copies of bank statements for the last three months
- A copy of a certificate of housing or a title of occupation
- Copies of monthly payments still due from creditors
- Sometimes, copies of tax and non-taxation notices as well as a contract of employment.
Once the file is accepted, the financial institution will propose a reduction of the maturities so as not to exceed the debt ratio. This rate is set at one-third of what the borrower has to repay.
Read also Solutions to get out of overindebtedness
To achieve this, debt reduction will take the form of lower monthly payments or a lower repayment rate.
Although this restructuring of debts seems interesting, it does have disadvantages.
Debt restructuring: advantages, disadvantages, and tips
Being able to start on a sound financial basis while maintaining your lifestyle is a huge advantage of debt restructuring.
But that says lower monthly payments, said lengthening the repayment period and increase in the final cost of credit.
In some cases, debt restructuring is therefore not advantageous, especially in cases where early repayment is required. The financial loss is then greater than the gain represented by a restructuring. In this case, it is better to repay your credits normally.
Finally, restructuring is only interesting if the rates are revised downwards.
In order to benefit from all the advantages of a debt restructuring, it may be interesting to contact a broker. The broker will conduct free online simulations, compare offers, advise his client and build a solid case.
The broker may also be well advised to take out insurance (in case of loss of employment, but also in case of death and disability).
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