3 Reasons Why You Should Consolidate Your Unsecured Debt

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Aug 31, 2021Personal Loan

For anyone, servicing multiple loan accounts is a challenging task. Apart from the risk of missed EMI payments, keeping track of the balance of outstanding loan amounts and managing finances can get extremely difficult. And, if anything goes wrong, it impacts your creditworthiness and ability to borrow a loan, when you need it the most. 

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If you are in such a situation, then you should consider going for debt consolidation, where you can consolidate unsecured debt by paying off all your existing loans with a new loan. It’s a popular debt management strategy and offers many benefits to the borrower. 

3 Reasons, why to go for an Unsecured Debt Consolidation Loan:

  • Reduces the Interest Cost:

By consolidating unsecured debt, you can decrease your overall interest cost, even if you have mostly low-interest rate loans. Going for a shorter loan tenure for the new loan, you can reduce the interest cost and also pay off your loan early. 

For example, consolidating all your credit card dues and unsecured loan with a single personal loan will result in saving interest costs that will help you to pay off the loan quickly. 

  • Helps to Maintain Credit Score: 

Multiple loans are hard to keep track of and reduce your credit utilization ratio, which impacts your credit score. Also, late payments and missed payments have a big negative impact on your credit score

Through debt consolidation, you bring all your loans into one loan account, which helps you to make the repayment process easy. Making consistent and timely repayments and ultimately paying off the loan will help you to improve your score over the long term. It will make your next “loan application to approval” experience much smoother. 

  • May Reduce your Monthly Repayments: 

Apart from savings on the interest cost due to the reduced interest rate burden, now your overall monthly repayments are more spread out over a new and extended time period. This helps in reducing your monthly repayments and in terms of monthly budgeting standpoint, you can have more flexibility to manage your finances in a better way.

There are many other benefits like it saves you from spending on penalties, eliminates the hassle of repayment, simplifies repayment and streamlines your finances.

Debt Consolidation through Personal Loan

A personal loan works well in the debt consolidation plan and is the right option for you. Being an unsecured loan type, you get the flexibility in planning the debt consolidation and pay off all your credit card dues and other loans.

There are two ways debt consolidation through personal loan works. Either, you make debt payments to lenders yourself or the new lender will directly repay all your existing debt to other lenders, in exchange for scheduled repayments in the form of monthly EMIs.

The following are the reasons, why you should take a personal loan for your debt consolidation plan:

  • Flexible Loan Tenure and Repayment Option: Personal loan comes with a loan tenure of up to 60 months, which you can choose personal loan EMI as per your repayment capacity
  • Competitive Interest Rates: Personal loan interest rates are competitive and borrowers with a good credit score have a higher chance of getting a debt consolidation plan from lenders at a lower interest rate. 
  • Collateral Free and Unsecured: One of the biggest benefits of personal loans is they are unsecured and borrowers are not required to provide any collateral for the loan. The loan amount depends on the income status, repayment capacity and credit score of the borrower.
Must Read: How To Consolidate Debt With a Personal Loan?
  • Instant Loan Approval and Disbursal: Compared to other categories of loans, personal loans are instantly approved and quickly disbursed by lenders, subject to fulfilment of personal loan eligibility criteria. It helps to execute the debt consolidation plan quickly and smoothly. 
  • Easy Documentation Process: The personal loan documentation is super easy and the loan is available for both salaried and self-employed professionals. To get a personal loan, you only need to provide three sets of documents, proof of identity, proof of residence, and documents supporting your financial and income status. 
  • Online Account: Using the online features provided by personal loan lenders, you can easily keep track of your loan details and repayment schedule, thus minimising the risk of missed EMI payments and penalties. 

Final Words

Debt consolidation through a personal loan is a very effective strategy to move away from servicing multiple high-interest cost debt to single low-interest cost debt and streamline payments. However, before considering a debt consolidation plan through a personal loan, you should keep in mind the following factors:

  • Your monthly payments towards servicing debt should not cross 50% of your total income
  • You should have a good credit score to negotiate a low interest-rate personal loan
  • You should be able to pay off the personal loan within five years 
  • You should have a consistent cash flow to make payments towards your debt
Must Read: How to Clear Credit Card Debt with a Personal Loan?

Most importantly, after you get a personal loan for debt consolidation, here are some of the steps you may follow to ensure that you don’t get into a similar situation again:

  1. Always pay your EMIs in FULL
  2. Always pay your EMI before or on the due date
  3. NEVER miss a single EMI payment.
  4. Avoid taking other loans until the current loans are fully repaid
  5. Manage your monthly expenses, giving highest priority to your EMI payment.

And, at last, you should understand, debt consolidation is not the end of the journey towards loan repayment, it only makes the journey easier towards loan repayments.

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