What is a credit debt consolidation loan and how to apply
If you're having trouble keeping track of your loans or managing your credit card payments and debts, a Debt Consolidation Loan may be a smart financial option for you. It will simplify your payments and help relieve financial stress.
What is a Debt Consolidation Loan?
A Debt Consolidation Loan is a personal loan that combines all of your existing loans and debts into one loan. Instead of paying multiple EMIs every month, you only pay one EMI every month - making it easier to budget and take the mental load off of your debt.
How does it work?
A Debt Consolidation Loan works in one of two ways: either the lender pays off your existing debts directly or you receive a lump sum to pay your debts. In either case, you then pay off the debt with the Debt Consolidation Loan EMI, often at a lower interest rate.
Example:
If you had three loans of ₹50,000 (15%), ₹30,000 (10%), and ₹20,000 (20%), you would consolidate to a new ₹1,00,000 loan at a reasonable rate of 12%. Instead of now paying more than ₹10,000 a month in EMIs you may, depending on your new loan structure, now only pay around ₹7,000.
Benefits:
There are significant benefits to this scenario as there is now:
- One EMI to remember and no stress
- Both simple and sometimes lower interest rates
- Ability to improve cedit rating if payments stay on time
- The stress of budgeting is now easier and clearer (one payment at a time)
Drawbacks:
However, potential negatives include:
- Not being able to obtain the loan as qualified / approved now that your credit rating has sunk so low (as was discussed previously).
- Lengthening your pay period, resulting in an overall larger interest payment.
- You have secured debt (as in a home secured by loan) and your loan is now being secured against this property - risking losing the home altogether.
Conclusion:
A Debt Consolidation Loan, all in all, is a smart approach in helping you avoid or limit negative impacts while simplifying your financial situation of managing loans and debts.