Debt Consolidation Loans: Free Yourself From Loan-Traps

debt

Lenders loan you money, whether unsecured or against a collateral, because they expect to make a profit on the loan through the interest they charge. As far as they are concerned, if you are late in meeting your dues or miss payments, it is good for them as they can levy penalties or other charges and earn more.

But if you miss too many payments, your creditors lose confidence in your ability to repay and start trying to collect the whole pending amount. This might involve several notices and warnings about your missed payments and in case you don’t come up with the amount, they might start calling you frequently or even send debt collectors to your home

Imagine this scenario happening with multiple creditors. You would certainly want to avoid this situation. Consolidating all your debts into one large loan might actually help you in these situations.

What is Debt Consolidation?

Debt consolidation is a process in which you calculate all the loans you are repaying, arrive at the total due amount, then take one large loan and pay off these smaller debts. You then have to concentrate on repaying the single loan and can be free of other creditors’ warnings.

Many banks and NBFCs offer debt consolidation solutions in the form of secured or personal loans. Should you go for one?

Debt Consolidation Loan—Types of Loans

To avail the funds to repay all the debt that is causing you trouble you need to have assets that you are willing to sell. If you have a parent, sibling, or other relations who are willing to lend you the money and allow you to repay it slowly, you can try this option.

If you had ready solutions like these, you would probably have cleared the loan debts and won’t be in the situation you are in now. So, you can consider securing a loan to pay off all these troublesome debts.

There are many options available:

If you have paid enough EMIs on you Home Loan, you can avail a top-up loan, which would come at a lower interest rate. You need to have enough equity on your home to use this feature to free yourself from multiple high interest debts.

You can get a loan against gold. In India, most families invest in gold jewellery and coins. You can pledge these to secure a loan amount to clear your other debts

If you have freehold property, that is, you own a plot or a house which does not have any encumbrance on it in the form of bank loans or loans from private lenders, you can readily use these to get a bigger loan amount

If you have shares and bonds, you can pledge these and get a loan

You can consider a loan against your car or other assets

If providing a collateral is not an option for you, you can consider getting a Personal Loan for Debt Consolidation
While secure loans come at much lower interest rates, you run the risk of losing the collateral in case of inability to repay the loan. Personal loans, despite their higher interest rate, do not involve such a risk as they do not require a collateral.

The Benefits of Debt Consolidation

Debt consolidation helps you in many ways, apart from providing relief from high EMIs and interest rates:

If you have too many bills to keep track of and you have loans and cards across different banks, it becomes hard to keep up with all the payments. You’ll have to manage several accounts, make payments to different lenders and run the risk of forgetting one or two of these payments

In this consumer age, with easy access to credit cards from different banks, you might be tempted to splurge beyond your income. If you skip repayment on these card dues, the credit card companies can charge an interest of as high as 40% per annum

You can convert the expense charged on your card to EMIs, but you still need to be regular with your monthly dues, otherwise it will lead to the same situation as above

If you have multiple loans like home loan, car loan, and personal loans you might be dragged down by the financial burden. Try to relieve yourself of the higher interest unsecured loans first

Personal loan rate of interest varies depending on many factors including your credit score. If you have a lot of personal loans with high rates of interest, debt consolidation might help you

With a Debt Consolidation Loan, you can pay off all the credit card dues and high interest loans first. This will provide relief from having to keep track of dues to multiple creditors

Mostly, you can secure debt consolidation loans at lower rates. You can also go for a longer tenure to lower the EMI burden

Getting a Debt Consolidation Loan

You can look for a good loan channel that will relieve you from multiple debts. You can get a secure loan by pledging an asset. You will get a personal loan at a low rate of interest as you have provided a collateral. But if you are unable to repay the loan on schedule, you risk losing that asset.

If you do not want to take that risk, you can look for an unsecured loan. Many financial institutions offer Debt Consolidation Loans in the form of Personal Loans. While personal loans come at higher rates of interest than secured loans, you can still find ways to cut down on your interest burden. You can make use of the Debt Consolidation Loan calculators available at lender sites or third party sites to find the ideal solution. You need to enter the details of your loans, and the calculator will provide suggestions.

If you want relief from credit card debts, these personal loans are a good option, the interest rates are much lower than on credit cards.

You may have high interest Personal Loans. You can consolidate them all under one lower interest loan and clear the outstanding, and in turn saving some money.

Debt Consolidation might provide you relief but you still have to clear this loan to free yourself of financial worries and improve your affected credit score. You need to look at the reasons that landed you in the debt mire in the first place. A debt consolidation loan is not a cure, just a temporary relief, that provides some extra cash to spare. Cut down on your spending habits and don’t take up every loan offer you get. Ultimately, this is the only way to avoid getting into a debt mire again.

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