Various unpredictable incidents in a person’s life make them experience tremendous financial issues. The only way out for them is to apply for and obtain an instant personal loan to cover emergency expenses. Even many financially responsible individuals often find it overwhelming to manage several debts at a time. Therefore, they regard debt consolidation as the only feasible solution.
It becomes immensely stressful and challenging for these individuals to maintain their financial stability. Thus, their preferred move is to secure a debt consolidation loan. More individuals prefer obtaining personal loans for consolidating debts nowadays. Despite financial constraints, they have to pay medical expenses and EMIs for home loans or auto loans.
Debt Consolidation: What is It?
You need not stress about managing multiple debts separately once you obtain this loan. The sole objective behind securing such a loan is to clear existing bills. A debt consolidation loan comes with a set of pros and cons.
Opting for consolidating debt will require you to secure an instant personal loan online or use a credit card. Make sure it has a lower rate of interest to enable you to pay all your current debts. You can manage monthly payments better by combining multiple debts into one larger loan.
Debt consolidation is a more feasible repayment procedure that integrates multiple debts into a single loan. The repaying process becomes simpler and more streamlined when a person drowning in debt qualifies for a debt consolidation loan.
Different Options to Consolidate Debt
Aside from securing a personal loan, a couple of different ways can help you consolidate debt.
Personal Loan
Securing a personal loan is the most feasible way to consolidate debts. NBFCs offer these loans to every qualified applicant, aside from credit unions and public or private banks. In order to pay off current debts, borrowing a particular amount of money at a certain interest rate is essential. Make sure you select a loan repayment tenure that is convenient for you.
Balance Transfer Credit Card
Relying on this option will let you transfer your current credit card balance to a completely new card. Doing so will help you get zero percent APR on the transferred balance for an introductory period. It is sensible to opt for this option for short-term debt consolidation. Otherwise, securing an online personal loan is more judicious.
HELOC
Leveraging HELOC, which stands for Home Equity Loan or Line of Credit, is the tendency of most individuals owning a residence. They take this step to consolidate debts. Home equity lets you secure a substantial amount of money at a time. The functioning process of the line of credit is akin to a credit card. Keep in mind that the risk of foreclosure is higher if you become a defaulter after choosing either of these options.
Pros of Debt Consolidation
You can manage your financial condition with much less stress if you secure a debt consolidation loan. Here are the primary advantages:
Streamlines Debt Repayment
Indeed, it is troublesome to pay EMIs for multiple debts with varying due dates. Debt consolidation streamlines the repayment process to a great extent. You can easily track and manage one consolidated monthly payment. You won’t miss out on any payment dates and can avoid fines for late payments if you consolidate debt.
Credit Score Improves
Your credit score will reduce for a short period because of obtaining a loan despite having several debts. Rest assured that it will shoot up over time as you keep making on-time consolidation loan repayments consistently.
Lower Interest Rates
Qualifying for a debt consolidation loan at a remarkably low-interest rate enables you to save decent money. Ensure you check whether the rate of interest is lower than the one on your current loans. You will have to pay a lesser amount of interest over the debt consolidation loan tenure.
Ensures Peace of Mind
Using personal loans for consolidating debts can help relieve your tensions. Indeed, one is bound to experience mental anguish due to the pressure of juggling multiple debts. So, the most judicious decision is to secure a debt consolidation loan for streamlining finances and peace of mind.
Helps Decrease Monthly Spending
Use a debt consolidation loan calculator to make a correct estimation of your total monthly payments. You can reduce your monthly spending with ease once you secure personal loans to consolidate debts. You won’t face any issues managing your monthly budget when you repay the consolidation loan at lower interest rates.
What are the Cons of Consolidating Debt?
Debt consolidation using an NBFC personal loan is a sensible move to avoid managing various existing debts. Still, it has potential drawbacks. Here are some cons of debt consolidation:
Loan Repayment Tenure Extension
You will have no option other than extending the consolidation loan repayment period if you don’t stop overspending. Do not forget that opting for this loan means changing the way you pay off your current debts. Debt repayment tenure extension will accrue more interest over time, and you could be in a debt spiral.
Borrowers Need to Pay Origination Fees
Securing a personal loan or opting for transferring credit card balances makes it mandatory to pay the associated origination fees. You must consider these extra charges when you calculate the money you save overall after consolidation.
Not Qualifying for Lower Interest Rates
To be eligible for a consolidation loan with low interest rates, you need to have a good credit score and credit history. A lower interest rate on a debt consolidation loan is contingent on your creditworthiness. If you don’t get it at a lower interest rate, consolidation won’t help you.
Doesn’t End Current Financial Issues
You will not get rid of your existing debts even if you secure a consolidation loan. All it does is help a borrower make repayments in a simpler way. Your current financial issues will continue to exist and may increase because of debt consolidation. Many borrowers with poor financial habits find themselves neck-deep in debt.
Conclusion
Ideally, settling on an informed choice will be more straightforward for you now as you know about the advantages and disadvantages. If you need to pay off a lot of debt, a consolidation loan is a wise choice. Also, do this if you have a good credit score and earn enough money to make timely loan repayments. To better manage your finances, you must end the behaviours that led to multiple debts and make better decisions.