With multiple debts, a single missed repayment not only incurs a financial penalty but also ends in damaging your credit score and creditworthiness as a borrower.
Nowadays, it’s relatively easy to obtain a loan. From purchasing a home or car to managing medical emergencies or other unforeseen exigencies, there are loans to address every requirement. The RBI’s interest rate reductions have also nudged people to take loans to fund lifestyle and aspirational needs.
Besides, the ongoing shift towards digital India has minimised red tape. These factors have facilitated the provision of quick loans that can be availed with a few clicks, encouraging millennials and other cohorts to fulfil aspirations today instead of postponing purchases for years as their parents did.
Mass use of credit cards and rising consumerism through BNPL (buy now pay later) schemes has also accelerated consumption and expenditure patterns worldwide. But some people are inadvertently getting sucked into debt traps due to excessive spending habits. As they say, too much of a good thing is also bad.
It’s no surprise that overspending has created perilous piles of debt for many borrowers, triggering high-stress levels. Tracking multiple EMI (equated monthly instalment) payments across different days of the month to pay various loans, credit card bills, household expenses, academic fees, commuting costs and whatnot can soon overwhelm borrowers.
In such scenarios, consolidation of debt provides some relief to harried borrowers. In simple terms, debt consolidation allows a person to merge various loans under a single one. When you opt for debt consolidation by taking a personal loan, all debts are merged into a single amount that is paid off every month. In essence, the personal loan settles all previous debts, leaving you with the commitment of repaying a consolidated loan amount through single EMIs.
Note that debt consolidation does not denote any reduction in your overall debt. Rather, it makes the monthly repayment process completely convenient and seamless because you no longer need to remember multiple repayment dates and amounts.
With multiple debts, a single missed repayment not only incurs a financial penalty but also ends in damaging your credit score and creditworthiness as a borrower. Therefore, these risks are wholly prevented with debt consolidation. Although your previous debts have been paid off, the task of repaying the consolidated loan amount will continue during the existence of its balance tenure. Ultimately, you will only be fully debt-free when the consolidated loan is repaid in full.
Like other debt agreements, loans for debt consolidation also have contracts between borrowers and lenders. Typically, the contract debars borrowers from being eligible for further borrowings. Thereby, consolidation loans can only be deployed for retiring previous debts as agreed upon. Moreover, you are time-bound to repay the consolidated debt within the predetermined period. Any delays in the repayment could incur fines.
To reiterate, debt consolidation only helps you streamline and better manage your debts. If your habit of overspending is putting you under a severe financial strain, it’s time to adopt prudent means of money management. A long-term solution in managing funds will work better than a short-term one.
Nonetheless, if currently in dire straits, you could approach a credible fintech firm or other lenders providing instant online personal loans to consolidate debts. The debt consolidation loan will keep things going till you implement long-term financial measures successfully.
By Gaurav Jalan CEO & Founder – mPokket