Personal Loan for Debt Consolidation

Are you feeling the stress of managing multiple loans and credit card bills? Maintaining a timely repayment of your EMI is essential. If EMI on your loans and credit card dues is not paid on time, it can lead to additional expenses and penalties and lower your CIBIL score. This is where a debt consolidation personal loan is the answer; combine all your existing debts into a single EMI. Imagine the relief of not having to follow up on various payments, together with the savings on high-interest payments. Let us check all the aspects of how a personal loan for debt consolidation works.

Debt Consolidation: A Real-Life Example

How a personal loan for Debt Consolidation helped Preeti regain her peace of mind and relieve her financial stress.

Preeti is a management executive employed by a leading multinational company. She made excessive use of her credit card for her wedding expenses. After her wedding, she decided to indulge her husband with a new car, which she funded with an Auto loan. Her current finances are as follows;

• Net salary: ₹ 60000/-

The Need for Debt Consolidation

• If she had to pay off her credit card debt, she would not have any funds left for her monthly expenses.
• She was in a dilemma as she tried to pay as much as she could, but the debts kept mounting.
• After paying the minimum balance on her credit cards monthly, the outstanding dues remained.

The resolution

She contacted us at yourloanadvisors.com for help finding a solution.

We helped her resolve the issue with a personal loan for debt consolidation by following these steps.

1. Asking her to retrieve her CIBIL report directly from www.cibil.com.
2. Her score was 700 points as she had been repaying her loan instalment and the minimum dues of her credit card on time.
3. The dip in her score was due to the overuse of credit cards.
4. We helped her apply for the balance transfer of her credit card dues to a personal loan.
5. Our experienced advisor checked that she had all her documents in order.
6. Her request was granted by a Bank that permits the takeover of credit card dues.

A score of 750 and above fetches a better interest rate when applying for a personal loan.

Preeti breathed a sigh of relief after comparing the effective savings! Detailed as below:

Thus, with a personal loan to consolidate her credit card debt, she regained her peace of mind and managed her expenses.

What is Debt Consolidation Personal Loan?

Credit is now a way of life, but it can become a source of stress if you have too much EMI to pay and credit card dues. A debt consolidation personal loan is a loan borrowed to repay debts of other credit accounts. Mounting credit card debt and high-interest EMIs are transferred to an unsecured personal loan at a lower interest rate and with flexible repayment terms. With debt consolidation, you now pay for multiple loans one EMI that is affordable and easy to manage.

When should you consider a personal loan for debt consolidation?

If your EMI repayment is delayed or you are unable to pay your credit card bills in full, it may be time to consider a personal loan for debt consolidation, act sooner rather than later, before it hurts your CIBIL score and the debt increases. The following are indications to consider.

Multiple Loans

Remembering the due dates for the multiple loans you are managing can be a hassle. You could have EMI due dates spread throughout the month, and missing a single EMI payment could result in late payment fees and a decline in your CIBIL score. Take charge with a multiple loan consolidation, helping convert all dues into a single EMI.

Overleveraged

You may be classified as overleveraged if you have too many loans running simultaneously, and the EMI paid exceeds the permitted monthly FOIR (Fixed Obligation to Income Ratio). Cibil also attributes 30% of your score to your existing credit utilisation. Instead of applying for an additional loan, consider transferring your credit card dues to a personal loan or applying for a personal loan for debt consolidation to bring your FOIR within acceptable limits.

Previous dues

A loan that is marked ‘settled’ (where you paid less than a full amount) or a credit account that remains pending will always reflect poorly on your CIBIL score and will damage it. An Auto loan that you have not been able to close successfully, or a disputed account that continues to keep your CIBIL score stagnant. Consider a personal loan for multiple loan consolidation to revamp your CIBIL score.

Suggested Read: How to Redeem and Improve a Low CIBIL Score.

How does a personal loan for Debt consolidation work?

Signs of financial distress include overspending on credit cards, taking out too many App loans, and failing to pay dues on time. It calls for action sooner rather than later, as debts can multiply quickly. Note the steps for Debt Consolidation via a personal loan to help get your finances in order.

1. Make an analysis of your income versus your outgoings.

• Take stock of all your current credit, including EMI payable for loans, pending credit card dues and consumer loans.
• Is the total outgoing comfortably manageable with your current incomes?

2. Check your CIBIL history.

• Get a CIBIL report by applying on www.CIBIL.com to verify your credit score and details.
• Check for any pending accounts and payments due.

3. Check high-interest credit dues.

• An overdue credit card balance attracts interest rates of 36% to 40% per annum; it should be a priority.
• App loans also attract a high interest rate and inflated EMI.

4. Check eligibility for balance transfer and debt consolidation.

• For a consolidation, the existing loans must not have a lock-in period.
• Consolidate the principal loan amount and other dues for debt consolidation.

5. Calculate the interest rates and terms.

• Compare interest rates offered by Banks and NBFCs.
• Check loan eligibility using the eligibility calculator.

6. Check eligibility criteria

• The applicant must fulfil the eligibility criteria required by the Bank.
• Confirm EMI payable using the EMI calculator.

Consult Your Loan advisors to assist you and help you consolidate your debt and get your CIBIL score back on track!

Suggested Read: Understanding CIBIL Score: A Comprehensive Guide

Can you Consolidate Multiple Loans into one EMI?

Multiple loans consolidation into a single EMI is governed by the Loan type and terms and conditions.

Secure Loans: Mortgages, Home loans, Loans Against Property, Auto Loans, and Gold Loans. Secure loans can be consolidated under the following terms and conditions:

• You cannot have 2 mortgages on a single property or consolidate 2 mortgages.
• To consolidate multiple mortgages, you can close the loans with alternative funds.
• Alternatively, you can initiate a balance transfer of your mortgage to another Bank for a lower interest rate.
• You can take a Top Up on a secure loan to repay high-interest dues for Personal Loan App, Loan, and Credit Cards.

Unsecured Personal Loans: Personal loans are issued by Banks and NBFCs with interest rates and terms as per individual policy.

• After paying 12 EMI, Banks allow you to consolidate a personal loan running at a higher interest rate.
• You can combine two or more personal loans via the personal loan Balance transfer process.
• Multiple personal loans can be consolidated via the Balance transfer process to pay a single EMI.
• You can use funds from a personal loan to repay Credit card debts and mortgages at a lower interest cost.
• Credit Cards: Your credit cards can be used up to the limit for a credit-free period of 35 to 40 days, after which an interest of 36% to 40% per annum is charged on unpaid dues.

• You need to consolidate your credit card debt to avoid the high interest and penalties applicable.
• Apply for a personal loan to repay outstanding credit card dues.
• Take a balance transfer of your Credit card loan to consolidate payments into a single EMI.

Let Your Loan Advisors guide you for the Debt Consolidation options.

What are the Pros and Cons of Personal Loan Debt Consolidation?

Pros or Advantages

1. Consolidated finances. You have the convenience of paying multiple loans one EMI instead of tracking multiple payment dates, minimum due amounts, and interest rates.
2. Lower monthly payments. Get a suitable EMI with a longer repayment tenure for a personal loan that fits your monthly budget comfortably.
3. Fixed tenure. Feel secure and plan your expenses with a fixed EMI throughout the tenure with a personal Loan for Debt Consolidation.
4. Visible savings. Save yourself from further debt and high interest on credit cards and App Loans with a Debt Consolidation plan.
5. Boost Credit Score. Clearing revolving payments can lower credit utilisation and help increase your credit score.

Disadvantages

1. Debts do not go away. The responsibility to repay your debt still stands; a personal loan for debt consolidation can make it more manageable.
2. Upfront fees and Costs: Personal loans carry a processing fee which is typically 1 – 3% of the loan amount. To secure a lower EMI, this additional processing fee must be paid upfront.
3. Risk of Increasing Debt. With the current financial issues resolved, it is important not to fall back into debt by budgeting for further spending.
4. You might have to pay more over time. By spreading your debt over a longer tenure through a top-up on your personal loan, the total cost of repayment will increase.
5. Collaterals required. To manage rising unsecured credit debt, some banks may ask you to pledge an asset to secure a lower interest rate.

Common Mistakes to Avoid with Debt Consolidation Personal Loan

1. Panic borrowing: can tempt you to take out loans from Apps at higher interest rates. Taking funds at a higher rate of interest to repay a pending EMI or credit card dues can further compound your debt.
2. Incomplete Debt Assessment: Make a transparent assessment of your outgoings, including all loans and credit card dues, ignoring even the minor debts that can add up.
3. Not Accounting for all charges: Before applying for a personal loan for debt consolidation, check all the charges that will affect your loan’s cost, not just the Interest rate.
4. Applying to multiple lenders: In an attempt to get the best deal for a debt consolidation, do not apply to multiple lenders simultaneously, as, besides lowering your credit score, you can be labelled as credit hungry.
5. Applying without Checking Eligibility: Check the eligibility criteria for a personal loan before applying. You should meet the Bank’s terms, such as age, income, CIBIL score, and employment with a company included in the HDFC Company Category list.

Alternatives to Personal Loan Debt Consolidation

You can apply for a debt consolidation instant online personal loan, a quick solution with flexible repayment options. You may not be considered for debt consolidation loan eligibility in the following scenarios.

• If your CIBIL score is less than 700 points.
• Your Credit card spending is more than 5 times your salary.
• You have a current EMI return (an EMI bounce) in the last 3 months.
• Your company is not included in the approved list of companies.
• You do not receive regular salary credits in your Bank account.
• Too many App loans are running presently.
• The basic debt consolidation loan eligibility criteria are not met.

Other alternatives to instant debt consolidation include;

Personal loan Balance Transfer: If your credit utilisation exceeds your FOIR, you can club your existing personal loans via a Personal Balance Transfer. The principal balance of the personal loans is transferred to a single loan, thereby reducing the monthly EMI.

Suggested Read: What is a Personal Loan Balance Transfer

Top up on an existing loan: If you have an existing personal loan with more than 6 EMI paid, you can apply for a personal loan top-up to obtain funds urgently required for debt consolidation.

Suggested Read: Personal Loan Top Up

Loan Against Property: If your existing dues seem insurmountable, it is worth the while sometimes to unlock the value of your property. Apply for a property loan to consolidate your debts. A Loan against property is issued at a floating interest rate, for a term of 15 years, which enables you to work out a suitable EMI.

Top-up on mortgage: If you are not eligible for a personal loan. Funds are available to consolidate your debts at a lower interest rate through a home loan top-up, a loan against property, or an Auto loan.

Gold loan: Gold ornaments are a precious backup plan in Indian households for times of financial stress. A debt consolidation loan is available against the value of gold to help relieve financial stress.