With self-employment, you can enjoy working freely and flexibly. No one will delegate work, and you will have to manage everything on your own. However, with this freedom comes a bunch of challenges like your income will be irregular.
This can disturb the monthly cash flow and you run into debt easily. If you have to deal with several debt issues at the same time, you need to carefully select your strategy. Consolidating can help in merging pending issues into one payment.
Now, since you are self-employed, you will doubt the possibility of getting debt consolidation loans. It goes without saying how these loans provide the perfect opportunity to address multiple debt payments at the same time.
You are in a dilemma because of the stricter affordability checks that will be part of the borrowing process. However, you still want to stick to this consolidating strategy for reasons like:
- You need to manage one payment instead of several
- Monthly payments are going to reduce
- Budgeting will be made easy because of fixed interest rates
- Working with clear repayment timeline is easier
Your self-employed status will not pose challenges while exploring financing options specialising in debt consolidation. Go through them to ascertain which one will work best for you.
Consolidate debts in different ways being self-employed
When you do not rely on a steady job for regular salary, you might feel hesitant to apply for loans. This could be because you do not earn money from direct employment. Since lenders need solid income proof, your chances of getting accepted for loans seems low.
The common areas where a self-employed person often struggles are:
- Income streams are not consistent
- Not receiving payslips regularly
- Tax returns shown as fluctuating profits
- Lenders see self-employed as risky borrowers
Options available for self-employed for debt consolidation
Self-employment does not create obstacles in your way to getting loans for debt consolidation purpose. There are avenues you can borrow money to manage debt issues.
Unsecured personal loan
If you want a straightforward way to address debt issues, opt for this short-term financing option. These loans do not require collateral and you can borrow a suitable amount that will demand fixed rates of interest.
However, you cannot choose any amount, as there will be a borrowing range to guide you on selecting the amount. As no purpose will be specified by the lender, you have the liberty to use them for any purpose.
Consolidating debts can be one of them. However, you should be careful about merging smaller debts. This is because you will get access to a smaller borrowing range.
Since no asset is involved in this process, your affordability will weigh more than anything else. This factor has nothing to do with your income stream, but your financial habits will have a major influence.
Secured loans
Now, if it happens to be that you need a slightly larger amount or you have failed to prove your affordability, you need to take another route. One of the common and most celebrated option is secured loans.
You must have understood that these loans will require collateral. Solid repayment assurance should be provided to convince the lender. Assets are a great way to reduce the lending risk for the loan providers.
However, you must not forget that you cannot afford to fail in repaying loans. In that case, the lender will repossess your assets and you will lose assets forever. The best thing about this option is that because of collateral, the lender will have no problem regarding your self-employed income.
Moreover, you can opt for longer repayment tenure. This will lower the monthly payment burden from your shoulder.
Credit card balance transfer
If you have found out that most of your debts is on your credit cards, you can try out balance transfer option. You will have to apply for a balance transfer card to pay down debts temporarily.
The main reason behind choosing this option is their introductory offer. 0% interest will be charged when the introductory offer is going on. This means that you will just have to return the principal amount without any interest.
If you are able to make the most out of this opportunity, you do not have to spend additional money on interest charges. However, you might have to establish perfect credit scores in order to get access to this option as a self-employed person.
Guarantor loans
When your financial capacity is not enough to match the repayment potential, you can seek support of a guarantor. This is also like providing solid assurance for loan payments. Here, you need to look for the right person who has perfect credit scores and the required financial potential to manage multiple financial commitments.
Apart from handling their financial responsibilities, they will also have to commit on repaying loans on your behalf. If you cannot make it to repaying loans on time, they will step in and make up for the amount.
Factors that lenders assess in the case of self-employed
Before approving any loan option, the lender should perform a few assessments. These are for validating a few things about your financial profile.
Stability of income
You need to submit relevant proofs like tax returns of 1 to 2 years to establish income consistency. The lender will go through these documents to see how you have been managing your financial responsibilities.
Affordability
As mentioned, the type of income does not decide whether or not you have to go through affordability checks. It is an assessment done by comparing your income and expenses. If your disposal income is adequate to meet loan payments, there are high chances that the lender will accept your loan request.
Credit history
Credit scores should not be ignored, as they have nothing to do your income stream. If you are paying off bills on time, your scores will be good or vice versa. However, by analysing your credit scores, the lender can understand a few points about your financial behaviour.
The bottom line
You are self-employed and not excluded from debt consolidation options. You must understand what the lenders want and how much you can fulfil before borrowing.