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.
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.
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.
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.
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.
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:
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:
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:
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.