If there is a burden of many debts at once, then debt consolidation will work, this is how you can get benefit
Debt Consolidation: In debt consolidation, a payment arrangement is made by combining various debts. With this, you get rid of many of your debts soon
Often we have to take many loans because of our needs. As a result, the debt burden on us increases and we have to pay many EMIs. Meanwhile, household expenses also have to be run. In such a situation, all the loans can be consolidated and repaid in one go. In loan consolidation, the loan amount is high, but the interest is low. This is called debt consolidation.
How Debt Consolidation Works
In debt consolidation, a repayment arrangement is made by aggregating various debts. With this, you soon get rid of many of your debts. However, a huge debt is created. This makes loan tracking easy.
It is a type of personal loan. The interest rate in this is relatively low. In this, the amount being given as interest is saved. In this the loan can be paid directly. Thereafter, the debt consolidation loan repayment starts on a monthly basis.
Generally credit card debt is consolidated as it attracts higher interest. However, you can also consolidate other types of loans.
Harshad Chetanwala, Co-Founder, MyWealthGrowth says, “Debt consolidation does not mean debt prepayment. Rather, in this you save on the interest being paid on various loans. It goes from high interest to low interest.
Many financial companies and banks in India offer this type of loan. These include HDFC Bank, Citibank, Axis bank, ICICI Bank and Bajaj Finserv etc.
Advantages of Debt Consolidation
Debt consolidation can prove to be a better option for many people. Through this the credit score can be increased.
If you have many types of debts, then you can convert them into one loan.
Payment defaults can be avoided through debt consolidation.
Even though it has to pay more, but it is easy to manage.
Disadvantages of Debt Consolidation
Getting a debt consolidation loan is not easy. For this credit score should be good. Also, good financial condition should also be good.
You should not try to get this loan from multiple banks. This can have a bad effect on the credit score.
Debt consolidation is not for everyone. If you do not have regular income, then this can be a problem.
Sometimes debt consolidation can also make you overconfident, which can lead to an increase in expenses.
It is possible that in the long term, higher interest amount will have to be paid.
If opting for a secured debt consolidation loan, your property may be in danger.
understand these things
In this loan, banks can charge an annual interest of 10 to 24 percent. Along with this, a processing fee of one to four percent may also be levied. The loan tenure ranges from one to five years.