Living in the era of EMIs and credit cards, our debt seems to hit us in every way possible. Car loans, Home Equity loans, mortgages, and other liabilities haunt us every first day of the month. Marking the deadlines and calculating different types of interests can baffle any person who is liable to pay.
But what if there was one simple loan that covered all of your debts and liabilities? This process of managing all your liabilities into one simple loan is known as debt consolidation.
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How does it work?
One loan, one installment
This service consolidates all your credit card loans, home equity loans, bills, and other financial liabilities. You can eliminate calculating and paying multiple interest rates and installments by paying just one monthly.
Once your loan is approved, the amount is credited to your account per the requirements. Likewise, you can settle all your debts with that amount and continue to pay interest for the consolidated loan for a fixed tenor. Liabilities or debts not affixed to an asset are viable for consolidation, such as
- Car loans
- Personal loans
- Education loan
- Credit card dues
Why should I consolidate my liabilities?
- To avoid missing your installment deadlines due to multiple loans under your name.
- To achieve lower monthly installments due to lower cumulative interest rates in consolidation programs.
Let’s understand this concept in detail. For example, you’ve taken a car loan with an obligation of 2,00,000 for two years at 12% and a credit card loan of 2,00,000 at 10%. If the collective monthly installments are calculated, the amount goes up to 12000 per month.
Whether you consolidate your loans, your monthly installment for a single loan obligation of 4,00,000 rupees may go as low as 6,000 in some debt consolidation programs.
- To avoid the menace of several loans and abide by their different terms and conditions.
How to consolidate all my debts into one?
A debtor needs to assess and evaluate different modalities of all his liabilities, loans, and credits. These include
- Loan Obligation
- Monthly installments
- Respective rate of interests
- Loan tenure
Once you adjudge all these factors, you can apply for debt consolidation accordingly. You may contact different finance reserves and banks for debt consolidation programs. Several institutions also provide online application and loan approval services.
Before applying for the consolidation, one must read all the terms and conditions carefully to avoid any future resentment. It would help if you also considered the risk factors of debt consolidation, such as high-interest rates, a downfall in your credit score, or loss of collateral due to the involvement of more considerable capital.
The steps you need to follow for this one-stop solution are:
1. Provide your personal, financial, and credit-related information to the finance companies or service providers for the KYC standards. These include
- Identify proof-PAN card, Driving license, passport, etc.
- Last six months, bank records
- Salary slip
Once you’re verified, you move ahead in the queue.
- Submit all the details and documents of loans you’re seeking consolidation for.
- Once the diligence formalities are completed, you can select the loan amount and tenor at your convenience.
- Once your loan is approved, the procured amount is credited to your account.
Hence you can clear all your debts and continue with the loan cycle of your consolidated debt as per the terms and conditions applied. So, apply for debt consolidation today and say NO to multiple monthly installments.
FAQs:
1. What is debt consolidation?
Debt consolidation means combining multiple debts into one single loan or payment. This makes it easier to manage your finances because you only have one monthly payment.
2. How does debt consolidation work?
You take out a new loan or use a debt consolidation program to pay off your existing debts. Then, you make one monthly payment instead of paying several creditors.
3. What types of debts can be consolidated?
You can often consolidate credit card balances, personal loans, medical bills, payday loans, and other unsecured debts. Some programs may also include certain secured debts.
4. What are the benefits of debt consolidation?
Debt consolidation can simplify your monthly payments, reduce stress, lower your interest rate, and help you pay off your debt faster if managed properly.
5. Will debt consolidation lower my monthly payment?
In many cases, yes. If you qualify for a lower interest rate or a longer repayment period, your monthly payment may be reduced. However, the total amount of interest paid may vary.
6. Does debt consolidation affect my credit score?
Debt consolidation may cause a small, temporary change in your credit score. Making your new payments on time can help improve your credit score over time.
7. Can I consolidate my debts if I have bad credit?
Yes. Some lenders and debt relief programs work with people who have less-than-perfect credit. Your options will depend on your financial situation.
8. Is debt consolidation the same as debt settlement?
No. Debt consolidation combines your debts into one payment. Debt settlement involves negotiating with creditors to reduce the amount you owe.
9. How long does debt consolidation take?
The process can take a few days to a few weeks, depending on the lender or debt refinancing program and how quickly your application is approved.
10. Who should consider debt consolidation?
Debt consolidation may be a good option if you have multiple debts, struggle to keep up with several payments, or want a simpler way to manage your finances. Speaking with a financial or debt professional can help you decide if it’s the right choice for you.