Debt consolidation is mainly combining many debts of small and big size into one single debt. It is actually possible to combine too many EMIs and monthly payments into one single payment. This will help in making sure no payment is missed due to confusion or delay. Juggling between too many payments is definitely not an easy task. By understanding this, debt consolidation is offered by many banks and NBFCs. Most of the times when there are too many payments to be made, we will either miss out some or might not have enough money to pay off all payments. This will lead to paying only the minimum due amounts and it will attract interest on the outstanding amount.
Paying just minimum payments on the bill will lead you to financial crisis very soon and this is when debt consolidation should be considered. This will club together all debts into a single one and the payment will be clubbed as well. It will make the repayment much more affordable.
3 Main Benefits of Debt Consolidation Loans
- Improves Credit Rating:
If an individual is able to pay off the debts or make regular payments on the outstanding debts, then the credit scoring will gradually increase. This is thus possible in the case of debt consolidation. Also before applying for a debt consolidation check the credit rating as this option will be given by banks only if you have good CIBIL scoring.
- Reduces Monthly Payments:
By consolidating the debt you will be able to split the current monthly payments into affordable payments for a longer tenure. This helps in not just managing the debts but you will have enough money to meet other expenses and basic necessities. By making just minimum payments, the borrowers will only be paying the interest of the loan amount but the actual loan in itself will remain as is.
- Reduces Rate of Interest:
Those who have lot of high interest rate debts on credit cards and other types of loans can make use of this option to bring down the interest rates on the payments made. Getting an option to reduce interest rates on existing loans should never be missed, however, consider this post scrutinizing all aspects of the offer.
How to Apply for a Debt Consolidation Loan?
Banks will firstly check what your outstanding debt is and will try to ascertain the credit risk by monitoring the CIBIL score. Based on these banks will advise if they are ready to offer a debt consolidation loan or not. In case if the borrower has low credit rating and bad payment records, banks will hesitate to offer loans to these individuals as they will not be ready to take the risk of loss of their money.
In order to apply for a debt consolidation loan, firstly check what the amount you want to borrow is, then make sure you have good credit rating and also determine for how long you require the loan.
Things to Do before Deciding on Debt Consolidation Loan
- Prepare a list of all existing debts
- Look for debts that are close to the end of loan tenure and exempt
- Check for debts that have pre-closure fees
- Do a research for a lender for debt consolidation loan
- Compare and pick the best debt consolidation loan lender
- Do the Maths
Planning this will not just help you in getting the advantage listed in this page but will also reduce your expenditure on initiation fees, service fees, insurance charges and processing fees. If you feel you are getting into a financial crisis, then it’s time to give some relaxation to your monthly payments and get some space for having a better living with your present monthly income.
Debt consolidation is a solution for reducing your monthly financial burden; it is not a solution for your outstanding debts. You will still have to clear all your debts but in a much more relaxed and easy manner with low interest rates. Taking a debt consolidation loan, be very particular not to take new debts until these existing ones are cleared. To be successful with your financial side improving your savings side and cut down necessary expenses that are created through wants.
Financial freedom through debt consolidation should not be a start for taking up more new debts. And before applying for a debt consolidation loan be sure you are aware of the terms and conditions from the bank’s perspective. Make use of the websites such as Finance Buddha to compare and pick the best bank for debt consolidation loans.