At some point in time, we’ve all borrowed money from others and repaid it back eventually; but often, the spare cash from one person might not be enough. Therefore, we might end up borrowing from more people, which leads to multiple debts. In fact, it’s not rare for some people to owe various amounts of money to friends, family, credit cards, banks and moneylenders- all simultaneously!
Borrowing money from friends, family or your credit card can seem like an easy way to get some money quickly, but you may not be able to get the amount you need at the time. Also, having debt on multiple lines of credit creates a heavy burden on your monthly budget.
In this situation, it becomes a hassle to manage your debt. While you’re trying to pay off one creditor, the others are also pressuring you to get their money back. If there is also any credit card debt, it can become easily sidelined while you attempt to pay off your other creditors, which will damage your credit score.
Living in metro cities such as Bangalore means that expenses can pile up quickly and it’s likely that you might end up owing money to a lot of creditors. This is why taking a personal loan in Bangalore for debt consolidation is the perfect solution, and we’ll delve further into how the process works.
How Debt Consolidation Works
Debt consolidation is a type of financing in which a borrower takes out a single loan to pay off all their multiple outstanding loans. Debt consolidation loans are essentially personal loans; therefore, you can avail a personal loan to consolidate your existing debt, be it credit cards, utility bills, medical fees, etc.
When you take a loan for debt consolidation, you get one lump sum amount that you can use to clear all your outstanding expenses or debts. With debt consolidation, there is just one lender who needs to be paid every month, instead of having to write cheques to several creditors every month. Additionally, your monthly burden gets reduced.
There are two ways to go for a debt consolidation, and that is via secured personal loans or unsecured personal loans. As with any loan, normal interest rates and fees apply.
With debt consolidation via secured loans, an individual can consolidate all their unsecured debt into one single secured loan. This can be done by loan against property, gold, life insurance property, or equity. With a secured consolidation, the advantage is that the interest rate on your loan will be lesser, and if the loan has been taken against real estate property, you may receive tax deductions as well.
However, the better and more feasible option is going for an unsecured debt consolidation. This is because most of us may not have collateral to pledge, or are unwilling to pledge it. Unsecured personal loans easily available from banks and lenders, and many of them have affordable interest rates and excellent repayment tenures and options available. Your collateral is not at risk and you don’t have the fear about providing it upfront.
Advantages of Personal Loan for Debt Consolidation
1. Single repayment: Since there is just one single creditor to be paid, it saves the hassle of making payments to multiple other creditors.
2. Affordable EMI every month: Consolidating all your debt has the benefit of being budget-friendly and thus easier to pay off.
3. Lower interest rate: Compared to other debts and loans, consolidation can fetch you a much lower interest rate, therefore saving money.
4. Repayment tenure: Just like personal loans, debt consolidation loans have flexible repayment tenures of up to 3 years.
5. Saves money: With low interest rates and flexible repayment tenures, debt consolidation loans save more money that paying individual creditors.
6. No collateral required: Getting an unsecured personal loan also eliminates the trouble of arranging collateral to provide as security.
7. Builds credit score: Taking a loan for debt consolidation comes with the added benefit of boosting your credit score, making it easier for you to get larger loans with lower interest rates in the future.
Sometimes, having debt can become overwhelming, especially if it’s owed to more than one creditor. The best practice in this case is to always ensure your savings are sufficient to take care of any financial obligations that can accumulate.
The reality is that most of us don’t have the means to deal with debt, and this is why debt consolidation is the perfect solution for eliminating your financial burden. You’ll be able to rebuild your credit history, all while making just one hassle-free EMI every month.