Debt Consolidation loan
Debt consolidation is a simple and direct idea that combines all your debts or loans into a single loan to simplify loan repayment.
Consider a situation where you have a variety of loans from various lenders, such as personal loans, credit card debt, student loans, etc., and you need to keep track of various payment schedules. Payments may not be made as a result. In these situations, you may obtain a single debt consolidation loan, enabling you to pay off your current loans and take out a single loan. You can better manage your debt in this way.
But how will you pay back your combined loan? The solution is simple: with a reasonably priced personal loan.
Where Can You Get a Debt Consolidation Loan?
Some banks will pay off your existing debts when they take them over. So, you can get a debt consolidation loan from a bank. This financial institution isn’t a bank or a fintech lender.
But only a few lenders offer this service. So, you should talk to your lender if you want to borrow money. On the other hand, it’s much easier to get personal loans to pay off these consolidated loans.
FINTITUDE, one of the most popular aggregators on the market, offers affordable personal loans that you can use to pay off your consolidated loan.
Debt Consolidation with Personal Loan
Loans are no longer used to pay for expensive purchases like homes or children’s education. Customers are taking out loans in more significant numbers to cover lifestyle expenses and low-ticket purchases like consumer goods. People, particularly those with low credit scores, are drawn to take out multiple loans at exorbitant interest rates as a result of the increased access to credit. Due to the increased EMI burden, they have little left for emergency funds or essential financial objectives.
The best way to get out of a similar situation is to consolidate your various loans by obtaining a personal loan with a lower interest rate and preferably a longer term. Additionally, combining your debts into one loan will spare you the hassle of keeping track of numerous EMIs, due dates, etc.
Why take a personal loan for debt consolidation?
Borrowers can consolidate their debt in several ways, such as by taking out a top-up loan on their current loan, a loan against their property, a loan against their securities, etc. Most people choose a personal loan because they don’t have to put anything up as security. A personal loan is also easy to get and easy to get money from. Some lenders, like Axis Bank and HDFC Bank, also offer pre-qualified or pre-approved loans that can be paid out right away to customers with good credit histories and the ability to pay back.
Existing personal loan borrowers paying high-interest rates can also use the personal loan balance transfer option to move their loan to another lender with a lower interest rate and longer term. Some lenders also offer top-up loans to people who choose to transfer their loan balance. The top-up loan can be used to pay off other, more expensive loans or reach other financial goals.
Now that you know why personal loans are an excellent way to pay off debt, here’s how to do it.
Step 1: Figure out the amount you need
Determine your total outstanding debt first, and from that figure, deduct the amount you can raise by selling your current investments, taking out a soft loan from your parents or friends, etc. Choose low-yield investments over high-yield ones, such as debt funds or bank fixed deposits, as they typically have much lower return rates.
Step 2: Check your credit report before applying for the new loan
If you check your credit report before applying for a new loan, you can find out your current credit score, see if there are any mistakes on your report, and fix them as needed. Credit bureaus let people get a free copy of their credit report once a year. But if you want to check your credit score from all three credit bureaus once a month for free, you can get your credit report from online marketplaces. You can get customized loan offers from partner banks and NBFCs based on your credit score if you get your credit report from an online lending platform. Also, using a financial marketplace to compare personal loans helps your credit score.
Step 3: Find the best personal loan offer.
Please find the best personal loan offer based on its interest rates, tenure, etc., once you know the loan amount. Ask the banks and NBFCs with which you currently have loan or deposit accounts about personal loan offers. Many lenders offer personal loans with lower interest rates to their current clients. Then, contrast as many lenders’ loan interest rates as you can. Additionally, you can check the offer with other lenders. You can compare personal loan offers from various lenders using online lending platforms based on your credit profile without affecting your credit score.
Step 4: Prepay high-interest loans first
Let’s say you need help paying all your bills at once. If that’s the case, you’ll need to rank your loans by how much interest they cost. People who owe money on their loans and credit cards must pay off their credit cards first. It is because interest rates (finance charges) on credit cards are usually higher, ranging from 30% to 45% p.a., depending on the credit card issuer. Also, pay at least the minimum amount due on your credit card bill to avoid being charged late payment fees, which will add to your debt.
Step 5: Pay EMIs of the new loan by its due date
After using the proceeds from the new loan to pay off your previous debt, make prompt payments to avoid fees and raise your credit score. Set up standing instructions in your salary or other primary savings account so that the loan EMI is automatically withheld from your account on the due date.
Final Word
Imagine you have several monthly payments, high-interest debts like credit card debt, or you could benefit from a lower monthly cost. A debt consolidation loan might be appropriate in that situation. Consult an expert about automating your monthly payments and debt consolidation. Apply for a debt consolidation loan with a financial institution after reviewing the documentation needed and the eligibility requirements.