Debt consolidation 101: Everything you need to know about combining your debts

Managing multiple Loans or Credit Card dues is stressful, especially when payments are due to different lenders, on different dates and at different interest rates. If you are juggling various debts and want a simplified solution, debt consolidation might be the answer. This guide helps you understand how debt consolidation works, its benefits, and whether it is the right choice.

What is debt consolidation?

Debt consolidation means combining multiple debts into a single Loan. Instead of managing various repayment schedules and interest rates, you take a Debt Consolidation Loan to pay off all your debts. The result is a single monthly EMI, usually with a better interest rate and a structured repayment term. This strategy is gaining popularity in India among salaried professionals and self-employed individuals who seek to regain control over their finances.

Eligibility for debt consolidation in India

Debt Consolidation Loan eligibility criteria are as follows:

• Age: 22 to 65 years for salaried and 25 to 65 for self-employed.
• Income: Rs. 20,000 to Rs. 25,000 from a salaried individual or minimum for annual turnover according to the nature of business for self-employed individuals.
• Credit score: Preferably 750 or above for better Loan terms.
• Employment: One year of experience and six months with a reputed employer or a consistent business track record minimum of three years.
• Debt-to-income ratio: Lower ratios are preferred, indicating good repayment capacity.

Benefits of debt consolidation

Debt Consolidation Loan benefits those struggling with multiple EMIs:

1. Simplified repayments: Tracking one EMI makes it easier to manage your monthly budget, reducing the stress of tracking different due dates.
2. Lower interest rates: Credit Card debts can attract high interest, sometimes exceeding 40% per annum. A Debt Consolidation Loan typically offers a lower interest rate, making repayments affordable in the long run.
3. Improved credit score: Regular and timely repayment of a single Loan can gradually improve your credit score, especially if you struggle with missed payments in the past.
4. Avoiding late fees:  Combining your debts into one Loan reduces the chance of late fees and penalties, often resulting from missing multiple due dates.

When should you consider a Debt Consolidation Loan?

Debt consolidation is a smart option if you have multiple high-interest debts and struggle to keep up with repayments. However, ensure that the new Loan comes with better terms, such as lower interest rates (starting from 13%) or a longer tenure (up to 60 months). So, you are not worsening your financial situation. If your income is stable and your credit profile is decent, a Personal Loan for Debt Consolidation effectively streamlines your finances.

Conclusion

Debt consolidation is not about running away from debt but taking control. By combining your liabilities into a single, manageable EMI, you can reduce financial stress and work toward a debt-free future. Evaluate the terms carefully and choose an NBFC with a reputation for transparency and excellent customer support. A Debt Consolidation Loan is a step towards regaining financial stability when used wisely.