How Debt Consolidation Can Help You Better Manage Your Finances
Nowadays, it is relatively easy to get a loan. From buying a house or a car to dealing with medical emergencies or other unforeseen requirements, there are loans to meet all the requirements. The RBI’s interest rate cuts have also prompted people to take out loans to finance their lifestyles and aspirations.
In addition, the ongoing transition to digital India has minimized bureaucracy. These factors have made it easier to get quick loans that can be obtained with just a few clicks, encouraging millennials and other cohorts to achieve their aspirations today instead of postponing purchases for years like their parents did.
The massive use of credit cards and the rise of consumerism through BNPL (buy now pay later) programs have also accelerated consumption and spending patterns around the world. But some people inadvertently find themselves in the debt trap due to overspending habits. As they say, too much of a good thing is also bad.
It’s no surprise that overspending has created perilous debt piles for many borrowers, triggering high levels of stress. Tracking multiple EMI payments (Equivalent Monthly Installments) on different days of the month to pay off various loans, credit card bills, household expenses, tuition, travel expenses and so on can quickly overwhelm borrowers.
In such scenarios, debt consolidation offers some relief to harassed borrowers. Simply put, debt consolidation allows a person to merge various loans into one. When you opt for debt consolidation by taking out a personal loan, all the debts are consolidated into one amount which is paid off each month. In essence, the personal loan settles all past debts, leaving you with the commitment to repay a consolidated loan amount through single EMIs.
Note that debt consolidation does not denote any reduction in your overall debt. On the contrary, it makes the monthly repayment process completely convenient and transparent, as you no longer need to remember multiple repayment dates and amounts.
With multiple debts, a single missed repayment not only results in a financial penalty, but also ends up hurting your credit score and your creditworthiness as a borrower. Hence, these risks are completely avoided through debt consolidation. Although your previous debts have been repaid, the task of repaying the consolidated loan amount will continue for the duration of its balance. In the end, you will not be fully debt free until the consolidated loan is fully repaid.
Like other debt agreements, debt consolidation loans also have contracts between borrowers and lenders. Typically, the contract prohibits borrowers from being eligible for further borrowing. So, consolidation loans can only be used to pay off previous debts as agreed. In addition, you are required to repay the consolidated debt within the predetermined time frame. Any delay in reimbursement could result in fines.
I repeat, debt consolidation only helps you streamline and better manage your debt. If your habit of spending too much money is straining you financially, now is the time to adopt prudent ways of managing your money. A long term solution in managing funds will work better than a short term solution.
Nonetheless, if you are in dire straits right now, you can turn to a credible financial technology company or other lenders offering instant online personal loans to consolidate debt. The debt consolidation loan will keep things going until you successfully implement long term financial measures.
By Gaurav Jalan CEO and Founder – mPokket