Taking on some small and large forms of debt are a part of everyday living. The debt may be in the form of loans, overdue amounts on credit card bills, EMI’s that have to be paid and others. Having multiple sources of debt with varied payment schedules and interest rates that seem to be never-ending due to overdue payments can be the cause of financial distress and ruin. Many people do go through taxing financial situations which causes their debt to escalate out of control – and it is useful at such times to know about Debt consolidation and how to consolidate your loans into a more favourable financial situation.
How to Consolidate your Debt?
Debt consolidation is the process of combining several outstanding loans into a single one. This is done by taking a personal loan for debt consolidation with a lower interest rate and flexible payment tenure of the sum required to pay off your outstanding loans. The remaining outstanding loans are paid off from the new personal loan taken. So if you are essentially swapping one loan for another – what could be the benefits to this situation? Read on to find out.
- Swapping High-cost Debt with Low-cost Debt:
There are several ways in which existing loans can become expensive: Credit card debt rollover has very high-interest rates. Also, If you start defaulting on your loans, the interest on overdue amounts along with a penalty on late or non-payment take your credit costs higher and higher. By taking a personal loan you can get a loan at a much lower rate of interest. Fullerton India offers affordable loans where the personal loan interest rate varies between 11.99% to 36% depending on various factors like the applicant’s individual profile and eligibility, age, location, employment type, work experience, net income, existing monthly obligations, etc.
- Single EMI Payment vs Multiple EMI Payments:
The debt consolidation swaps a single EMI payment date and amount instead of the many dates and amounts that you would have to remember and pay in the month. This solution thus diffused the ticking time bomb sort of situation in the borrowers' mind who is struggling with too many loans. The constant fear of struggle of not missing a single payment date with the added risk of being penalized if you do is an intimidating situation. A single EMI allows for paying and planning for a single payment, which is much easier to handle.
- Disciplined Payment:
The single EMI on the consolidated debt loan enables a disciplined form of loan repayment. There is a single date for a fixed sum to be repaid every month and that is easier to do for a borrower than to deal with myriad repayment schedules whose very flexibility allows for further delays in payment. For example, the revolving credit system in credit card debt is a morass that the financially unsavvy can sink into very deep before they realise how very expensive it is for them.
- Credit Score:
The taking on of a personal loan for consolidating debt may cause a temporary downfall in your credit score, but that would have anyway happened if you were unable to keep up with any of your repayment schedules. In the long run, it shows financial responsibility especially if you pay the loan amount on time and in full.