Repaying multiple loans can become tough because of multiple payment dates and multiple interest rates. Apart from this paying multiple EMIs is even not good for your finances, as it consumes most of your money.
But do you know? Consolidating your existing loans into a single one can help you save a lot of money. Let’s understand how?
How to Consolidate your Existing Loans/Debts?
One can consolidate their debt easily by taking out a new loan to pay off their existing obligations and consumer debts. This means your multiple debts are combined into a single loan which is equivalent to the total loan amount of your existing debt. The new loan usually comes with more favourable payoff terms and at a lower interest rate which reduces your monthly outgo towards the EMI.
Benefits of consolidating existing debts:
- Converts multiple loans into a Single Loan
- You pay a single EMI
- Reduces Interest Rates.
- Saves a lot of money
- Can improve credit score.
- Makes you stress-free.
- You end up repaying your debt faster.
- You can focus on other financial goals from the saved amount.
Personal Loan as a Debt Consolidation Loan:
Personal loans are one of the most popular financial products as they can fund various expenses without any restriction. Be it covering a marriage expense, or funding a medical emergency, personal loans can cover any of these expenses. But, very few people are aware that personal loans can also be used to consolidate existing debts.
Why Personal Loans for Debt Consolidation?
Personal loans for debt consolidation combine your different debts into a single one, resulting in paying only a single EMI. Here are a few reasons why personal loans are considered debt consolidation loans.
Single EMI Payment: Paying multiple EMIs is a hassle in terms to remember the date and track the payments as well. Missing even a single payment/EMI can lead to penalty charges and can also affect your credit score at the same time. Consolidating your debt with a personal loan avoids such hassles and allows you to make one EMI payment every month.
Lower Rate of Interest: The interest rate charged for a personal loan is lower than the combined interest rates of your existing loans. So, by going for debt consolidation you can save a lot of money on the interest component. But, before you opt for one, it is important to compare the interest rates charged by various lenders before applying to a particular lender.
Fixed Repayment Tenure: Generally personal loans come with a repayment tenure from 1 to5 year. So, you need to repay the borrowed sum within this period and hence you become debt-free in a comparatively shorter time.
Use EMI calculator: Before you go for any debt consolidation loan it is important to use an EMI calculator and know the approximate EMI for your new loan. Once you know this, you can easily compare the difference between your previous EMIs and new ones and hence can know the total savings.