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How to consolidate debt with a Personal Loan?
Procuring financing for fulfilling various financial needs and goals is easy with a variety of instant loans available today. However, if a borrower doesn’t consider his financial standing before applying for such loans, he may find it difficult to pay his EMIs. Defaulting on loan EMIs severely impacts one’s creditworthiness and thus the credit score. Lenders may reject future loan applications from a borrower with a sub-optimum credit score. If a borrower has taken several high-cost loans, the mounting EMIs and interest payments may force him to spend all his savings or even worse, he might have to liquidate an asset. So, the question arises- What is better, a single EMI or multiple EMIs? If you wish to swap having to remember different due dates and making multiple payments in a month with a single monthly payment, debt consolidation could be a good idea.
What is Debt Consolidation?
Debt Consolidation: It is a form of debt management and it combines multiple debts into a single new consolidated debt. It helps to reduce the number of creditors you owe money to. A debt consolidation loan may be either secured or unsecured. Put simply, Debt Consolidation reduces the number of loans and/ or creditors. It is a financial strategy to reduce the debt load of a borrower.
Advantages of Debt Consolidation
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Simplifies the debt repayment process by reducing the number of loan accounts to manage
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You could get a better interest rate on your new consolidation loan owing to market conditions
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A longer tenure debt consolidation loan could help you better manage your monthly expenditure and EMIs
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Your credit score takes a hit if you haven’t been able to make timely repayments on multiple previous loans. With a single EMI consolidation loan, you have the chance to improve your credit score by having to repay only one EMI on time.
How to Consolidate Debt with a Personal Loan?
As mentioned earlier, 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. Alternatively, you could apply for a Personal Loan to consolidate the debt.
Here are a few reasons why you should consider consolidating debt with a Personal Loan:
Lower Cost of Loan: Even with a high-interest rate Personal Loan, the cost of a Personal Loan would be comparatively cheaper than repaying multiple loan EMIs, interest, additional charges, penalties, etc. However, before you apply, do check your Personal Loan eligibility to ensure the approved loan amount covers the combined outstanding amount of the previous loans. Try to negotiate with the lender for a lower interest rate on the Personal Loan.
Single EMI: Multiple due dates, reminders, and the credit score taking a hit in case of defaults make servicing multiple loans difficult. Consolidating your debt with a Personal Loan means having to take care of only a single EMI. Also, managing a monthly budget and financial obligations becomes simpler and easier with a single EMI consolidation loan. You can use the online Personal Loan EMI Calculator to get an estimate of your monthly EMI.
Fixed Repayment Tenure: By applying for a Personal Loan to manage your debt, you get to choose tenure of your preference. You can plan the repayment according to your income in a systematic manner.
Convenience: Instant Personal Loans take only a few minutes to get approved. Quick approvals and a simple digitized process are some of the reasons why instant Personal Loans are preferred as Consolidation Loans.
No-Collateral Loan: A Personal Loan doesn’t require any collateral. Thus, you do not have to mortgage your assets to manage your debt. Your assets can continue to appreciate and generate returns while you consolidate your debt.
The facility of Pre-Payments: Whenever you have surplus cash, you could consider pre-paying some amount towards the Personal Loan. It is a great way to reduce the interest part of your outstanding loan amount.
Conclusion
If you are serious about getting out of a debt trap, a Personal Loan could prove to be useful for debt consolidation. However, before you apply for a Personal Loan, you should ensure that you are financially capable of repaying the consolidation loan on time. Defaulting on this new loan could land you in a worse financial condition than you previously were in.
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