Debt Consolidation is the Superhero You have been Waiting For

 Amrita Agarwal
  Dec 27, 2017

A superhero..... Isn't it fascinating?

The fascination and excitement over such extraordinary personality have been lingering in the minds of most of us since our childhood. The only thing which has been changed over the years is the expectations from that superhero. In our childhood, we dreamt that one day our superhero will come and save us from the imaginary villains and nowadays we want him to save us from the real hassles of day to day life. In present day most of us are surrounded by a number of hurdles. One of such hurdles is the DEBT, and to the surprise of all, there is a real Superhero who is the savior of a debt trap is a Debt Consolidation.

A debt consolidation makes a person free from the financial woes. Being under debt or credit is a very common phenomenon. One can hardly come across a person who has no loans to be paid. As mentioned above being under credit is not unusual but it starts causing worries once the credits increase in number and one has to pay many EMIs in a month. Paying a number of EMIs and bills in different dates within the month leave any person with never-ending worries. Now all these financial worries can come to an end with help of a debt consolidation.

What is a Debt Consolidation?

In simple terms, a debt consolidation is nothing but taking one more loan to pay off and close all the existing debts. By this way, all the scattered debts will be assembled in a single place and one has to pay only one EMI. A debt consolidation is an act of pre-closing a number of loans and servicing a single loan.

A debt consolidation many advantages and a few disadvantages too. Let's understand all those pros and cons very clearly.

Upsides

1) Lowers the Interest Rate- A debt consolidation is a well-known tool to bring the interest rate down. The interest rate on a credit card is undoubtedly higher than personal loans. So a credit card debt consolidation is beneficial by all means. Even debt consolidation for personal loans also fetches much profit. Personal loans come with a fixed interest rate. So many borrowers had to face a situation where all the new borrowers are paying a lower interest rate but he is paying more as it was taken a few years back. A debt consolidation is the best way to get the desired interest rate.

2) Minimizes the EMI- A debt consolidation can even minimize the EMI amount. An EMI can be lowered either by lowering the interest rate or expanding the tenure. A debt consolidation gives the provision of both. While applying for a debt consolidation loan one can go for the longest possible tenure which will bring the EMI down. So the financial pressure because of paying a high EMI can be eliminated by a debt consolidation.

3) Option to Change the Tenure- A debt consolidation not only brings the interest down but it always comes with an option to choose the tenure according to one's capability of paying EMI. A shorter tenure makes the EMI bigger but it also reduces the total cost of the loan. In another hand, a longer EMI can be preferred if the present financial condition doesn't support paying a higher EMI. So both the ways are open when a person goes for a debt consolidation.

4) More Options- If a borrower has a good repayment history then there are many banks and NBFCs who offer competitive interest rates. A good customer is desired by any lender. So with a good credit score, one can even negotiate the interest rate with the debt consolidation loan provider. One can go with the lender who offers best rates and flexible terms and conditions.

Downside

1) Hard to Find With a Bad Credit Score- Is it easy to find a loan provider with a good credit score but in case of bad credit score, it is very tough to get a lender with a profitable deal. Lenders check the credit report of any loan applicant before sanctioning the loan. An applicant with faults and bad remarks in the credit report either gets a rejection or a loan with a high-interest rate. In both the cases, the situation may become worse as such activities will hit the credit score once again and it will go lower. So it is essential for the borrowers to maintain the regular repayment so keep the credit score in a balance.

2) Fees- Every loan including a debt consolidation loan comes with some fees. These fees are mandatory for any applicant to pay. Such fees include processing fee, service tax, GST etc. But these are not all. A debt consolidation aspirant has to pay the foreclosure penalty to the all previous lender if the loan was in a fixed interest rate. So while calculating the total benefit, one must calculate all these payables.

3) Needs time and effort- A debt consolidation doesn't only requires payment of various fees and penalties, it demands lots of time and effort of the applicant. To find out the best lender, the best deal, negotiating with the new lender, requesting all the existing lenders to pre-close the credit account, submitting piles of papers and whatnot. Investing these much of effort is worth only if the profit is a huge amount. Otherwise taking out one's spare from the busy schedule to gain only a name shake profit is never worth appreciation.

The Bottom Line

A debt consolidation is an ultimate way to come out when you are entirely sunk into the quicksand of numerous debts. It lessens the physiological pressure on any person as it brings a number of loans under the same platform. But one has to keep in mind the debt consolidation is not the settlement of loans. One still has to pay his EMIs in order to become debt free and boost the credit score.

Debt Consolidation is the Superhero You have been Waiting For

Amrita Agarwal

I am self employed. I am interested in writing,marketing and business. I have a good habbit of writing about financial things and I want to inform the people in detail about finance requirements.

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