- Date : 27/12/2021
- Read: 3 mins
Do you have multiple ongoing loans that are stressing you out? Debt consolidation can help you convert them into a single loan and achieve peace of mind.
People who are in debt tend to take loans from many sources. These include multiple credit cards, personal loans, vehicle loans, education loans, and borrowing from friends, family, or moneylenders. They may do this due to a medical or other emergency or wrong spending habits. When an individual takes a new loan and pays off all other outstanding loans with it - usually at a lower interest rate - it is known as debt consolidation.
Benefits of debt consolidation
Debt consolidation offers you many benefits, such as the following:
1) Consolidate multiple EMI payments into one
When you take a debt consolidation loan and pay off all other existing debts, you need to take care of only one EMI. It reduces the time and effort required to manage multiple EMIs, remembering their dates, making sure money is available for each EMI, etc. Managing a single loan EMI is hassle-free.
2) Avail of more competitive interest rates
It is good to replace high-interest loans like credit card outstanding with debt consolidation loans. Credit cards are one of the most expensive loans as they charge 24%-45% per year. Given such high interest rates, monthly credit card dues can balloon out of control. Hence, replacing credit card outstanding with a debt consolidation loan will save you money. The interest rate charged on these loans is much lower than that on credit cards, and you will become debt-free sooner.
Further, if you have any loans from family, relatives, or friends, it’s best to pay off the debt with a debt consolidation loan to avoid embarrassment when facing them.
Related: How To Come Out Of Credit Card Debt
3) Eliminate irritating calls/visits from collection agents
When you have replaced existing debt (including credit card outstanding and other loans) with a debt consolidation loan, you can breathe easy. You will not get any unwanted calls from collection agents at your workplace or home. They will not come knocking on your door and embarrass you in front of family members and neighbours.
4) Achieve a healthy credit score
When you repay multiple outstanding loans such as credit cards in full rather than carrying forward the balance, it helps you maintain a healthy credit score or improve it. Having multiple loans going on simultaneously tells financial institutions that you are credit-hungry. Also, if you carry forward balance, it may show that you are not financially disciplined. All these things can have an adverse impact on your credit score. Hence, it is better to have a single loan and pay the EMI on time to maintain a healthy credit score.
5) Reduce stress and attain peace of mind
Debt management is the key to reducing stress as it streamlines your finances. Having multiple loans can stress you out - it can affect you mentally as well as ruin your physical health. However, debt consolidation can help in reducing stress and living a healthy life. The practice is good for your financial, mental, and physical health.
Now that you have understood the benefits of debt consolidation, and if you have multiple loans going on, it is time to act. While doing your research, check your debt consolidation loan eligibility and read the loan terms carefully before signing on the dotted line. Negotiate with the bank for the best debt consolidation rates. Remember, every percentage reduction in the interest rate will help you become debt-free (and thereby, stress-free) sooner.
Also Read: Good Debt Vs Bad Debt: What You Need To Know