Taking a loan is one of the most convenient ways to solve your financial troubles. However, this may lead you straight into a monetary chaos of multiple loans with various interest rates and tenures. It can strain your monthly budgets with the numerous installments you must pay or the different deadlines you need to be mindful of.
A great way of managing all these liabilities is to consolidate your debts. This option allows you to convert all your loans into a single debt, wherein you can pay off your liabilities with a single installment each month. Let us look at how loan consolidation works and its benefits.
How To Consolidate Debts?
There are several ways to consolidate your debts. You can get a new personal loan and use it to pay off all your existing liabilities. With a personal loan, which acts as a debt consolidation loan, you can pay off all your liabilities without much hassle. This option allows you to revise your repayment schedule. It makes it easier for you to repay all your different loans through a single installment each month at one revised interest rate and tenure.
However, doing so requires you to bear the brunt of additional processing fees. Furthermore, it is possible that you may not get a lower interest rate for your new loan if your credit score is on the lower side. Thus, it is important that you check the various aspects of debt consolidation, like the personal loan eligibility and interest rate. This helps you ensure whether it is truly beneficial for you.
Top 5 Benefits of Debt Consolidation
It is important to set a fixed goal in mind, like improving your credit score or managing your cash flow better before opting for a debt consolidation. Here is a list of some benefits debt consolidation offers which can help you meet these goals.
1. Manage Debts Effectively
It may happen that you have taken too many loans, leading to you having to repay a large amount. Additionally, the different interest rates and tenures of these loans, along with the varied terms and conditions can make managing them difficult. To repay these liabilities at more favourable terms and affordable rates, debt consolidation can be really helpful.
2. Improve Your Credit Score
If you have a bad credit score and look to improve it, consolidating your debts is a great option. While initially it will have a negative impact on your score, it will increase your score. This is because it helps you manage your repayment schedule. Instead of juggling between multiple deadlines and numerous EMIs, paying one installment a month is just easier. This helps you improve your credit history and thus boost your credit score.
3. Manage Your Cash Flow
Paying multiple EMIs can have a major impact on your monthly budget. Furthermore, the varied interest rates can make these multiple loans more expensive for you. If you are looking to improve your monthly cash flow, you should consider consolidating your debts. It helps you strategise and plan your finances better, allowing faster repayment of your loans. Furthermore, when consolidating your debts, you may be offered a lower interest rate, which can ease the monetary strain.
4. Simplify Finances
Debt consolidation loan allows you to convert multiple loans into one. Which, as discussed above, allows you to repay your debts with one EMI instead of the multiple instalments you presently pay. This helps you calculate the aggregate expense of your liabilities and plan your finances better. It provides clarity and helps you overcome your monetary hurdles easily. With such simplified finance and good planning, you can even become debt-free sooner than you expected.
5. Favourable Terms
When faced with urgent financial requirements, we do not have the time to evaluate each offer available and compare. We are forced by circumstances to pick the lender that offers the required funds easily and quickly. However, when consolidating your loans, you can always pick and choose your new lender. You may be offered lower interest rates, extended tenures, or flexible repayment options. Pay close attention to these and pick the option that caters to your requirements the best.
Debt consolidation is a great way to streamline your liabilities and come up with a new plan to manage them better. Make sure to look at the various options available to you when getting a debt consolidation loan. Also, do check the personal loan eligibility criteria before taking a new loan for the purpose. This is to ensure that you get the new loan at favourable terms and lower interest rates, helping reduce the monetary strain on your finances and become debt-free as soon as possible.
