4 Ways to Consolidate Your Personal Loans in 2023

According to different life stages, our financial needs and goals also change. Prudent individuals anticipate such needs and plan for them. However, there could be situations when personal savings do not suffice. In such cases, a person has to either let go of his assets or take out a loan. Personal Loans are versatile loans that can be used for a variety of purposes. When used smartly and responsibly, they are a great tool to address short-term financial needs. The ease of application and loan process makes no-collateral instant Personal Loans very popular. However, such convenience may induce overspending and you could end up taking a Personal Loan for a variety of requirements. Servicing multiple Personal Loans every month is not only cumbersome but could increase your financial burden. Repaying several Personal Loan EMIs could use up all your savings; defaulting on them will severely harm your credit score.

What is Debt Consolidation?

It is a financial strategy to combine all your existing loans into a single loan. It is a form of debt management and it combines multiple debts into a single new consolidated debt. . A debt consolidation loan may be either secured or unsecured. Debt consolidation doesn’t eliminate the original debt, it simply reorganizes it. If you have been struggling to service multiple loan payments, you could approach your lender to check if they offer any Debt Management services.

How to Consolidate Your Personal Loans?

Simplifying your monthly Personal Loan EMIs can help you manage your finances better to take care of other financial obligations. Most importantly, being more disciplined in repaying a single consolidated loan can help you improve your credit score.

Consider a Debt Consolidation Loan: A debt consolidation loan combines your existing loans into a single loan. The high-interest rate Personal Loans can be replaced with a lower interest rate loan. A consolidation loan could be both a secured or unsecured loan. In a secured consolidation loan, you could mortgage an asset such as property, gold, etc. to pay off the existing Personal Loans. If you opt for an unsecured consolidation loan, you must ensure that the new loan is a low-interest loan. Alternatively, you should try and apply for a Personal Loan with the lowest possible interest rate to replace the existing high-interest Personal Loans.

Debt Management Services: Many lenders offer Debt Management Services to customers who are struggling with multiple loan debts. A Debt Management Programme restructures your existing debt to create an affordable monthly payment schedule to help eliminate the debt. The monthly repayment amount is fixed so that you can make financial arrangements accordingly. Check if your lender provides such a service.

Balance Transfer: You could transfer your high-interest rate Personal Loans from your existing lender to another lender who offers a low-interest loan. Balance Transfers usually come with promotional and discounted interest rates to attract new customers. Even though the loan amount remains the same when you switch lenders, your Personal Loan EMIs would come down with a lower interest rate on the new loan.

Borrowing from Friends and Family: This could be a tricky situation if not handled well. If you have supportive friends and family, seek their help in getting out of the debt trap. It is advisable to be transparent about when and how you plan to repay them. You could use the money to pay off the Personal Loan with the highest interest rate first. You could then work toward the other Personal Loans. Simultaneously, make a monthly budget and cut down on unnecessary expenses. You could pay the person you borrowed the money from a fixed amount every month. Or, keep aside a portion from your monthly budget in an emergency fund and use it to repay the family member/ friend the money in a lump sum payment.

Conclusion

Coming out of a debt trap is not easy, especially if you have multiple Personal Loans with high interest rates. The trick is to stay disciplined and consistent in your efforts to pay them off as quickly as you can.