Mahesh Kurundwad, a social media analyst based out of Pune, had a lot of responsibilities at home. So most of his salary was utilized in meeting those expenses. To meet other discretionary expenses, he often went in for personal loans or used his credit cards. Before he could realize, he was saddled with 3 different personal loans and an unpaid outstanding on one of his credit cards. Due to different dates and different rates of interest for all loans, he sometimes missed repayments, paid penalties, and other charges.
He wished it would be so much easier if he could do a single remittance and someone took care of loans and the credit card outstanding.
There exists a product which might just be what Mahesh wished for. It is called the Debt Consolidation Loan.
What Are Debt Consolidation Loans?
Debt Consolidation Loans are designed to consolidate all your debts with varying interest rates into a single debt with a fixed rate of interest. This makes it easier for you to track and repay your loans at the earliest. This is also helpful in case you have bad credit.
Who Should Consider Debt Consolidation Loans?
Debt consolidation loans could be helpful in cases like:
Multiple debts and finding it difficult to manage them
Debts with a high rate of interest
Difficulty in maintaining monthly repayments
How Does Debt Consolidation Work?
A debt consolidation loan consolidates all your existing loans into one single loan at a fixed rate of interest. The type of loans that can be consolidated are the personal loans and credit card outstanding. Other loans like a vehicle or home loan cannot be brought under debt consolidation loan as they have collaterals attached to them.
However, before taking the step of consolidation, one would need to check if the resultant rate of interest on the consolidated loan is lower than the earlier loans. The difference would need to be significant enough so that there are benefits involved in consolidation even after catering for a processing fee, etc.
One needs to keep in mind that going in for a debt consolidation loan does not absolve the individual of the responsibilities of repaying the existing loans. It is only a consolidation, hence they would be paying one single repayment installment which may be equal to or less than the existing loan repayments.
Debt consolidation loan could also help you in maintaining a better credit score as you are not dealing with many repayments and thereby reducing the chances of missing one. If you are regular with your repayment of the consolidated loan, you can see your score going up as well.