Source: |Updated: Dec 03, 2021, 03:51 PM IST
Every person with a salary or income from a business has limited income at their disposal. This income is spent on mandatory spends like household groceries, monthly maintenance charges, utility bills, children’s education, travel and food, medical costs, incidental expenses…the list goes on! Add to that EMIs for any loans you may have borrowed to buy a house (home purchase loan), vehicle loan (to buy car or two-wheeler) or even a credit card loan. These EMIs must be paid every month till the loans are settled in full (principal + interest component).
Being in debt is not a choice – it is hardly possible to buy a house without a home loan with realty rates soaring skyward, or to finance an emergency without borrowing against your credit card. But debt can also strain your resources – deduct the EMIs from your monthly expendable income, and you are left with about half of your salary or business income to spend on other essentials. The more the debt burden, the higher the chunk of money that is deducted from your spending money – and this reduces your spending power dramatically. You are forced to rethink most financial decisions and even saving money every month can become tough.
The obvious solution is to get out of debt. This year, aim to remove as much debt out of your financial life as possible with a useful tool – a personal loan.
A personal loan to consolidate your debt
It might seem counterproductive to borrow more debt to settle older loans – and most people would agree that this is bad practice. In fact, fresh loans taken to repay old loans cause people to spiral into a debt disaster that they cannot get out of. This happens most often with those who apply for new credit cards to repay old credit card loans. However, using a personal loan to consolidate old debt is a sound financial move, for the following reasons:
- It helps you bring multiple loans under one single quick loan. This leads to better financial management
- Instead of paying multiple EMIs per month, you only need to pay a single EMI towards the personal loan
- With a much shorter tenure than secured loans, personal loans can help you get out of debt much earlier than expected. If your target is to become debt-free in a few months, then loan consolidation using a personal loan is the way to go
- Leading loan apps in India offer competitive personal loan interest rates and lower processing fees than other lenders. This results in a cost-effective loan overall
- A personal loan can be used for any purpose, other than debt consolidation. If you wish to buy an expensive phone, borrow a mobile loan to pay for it upfront. Personal loans often double up as consumer durable loans and even medical and education loans
What to check before you borrow the personal loan
But before you apply for the personal loan for debt consolidation, do note the following points:
* Assess your overall need: If the maximum loan amount does not equal or exceed the outstanding old debt, then taking the personal loan does not benefit you. In this case, try and foreclose the old debt one by one as soon as you can.
* Personal loan interest rates: If the interest rates are much higher than industry standard, you need to look for another lender. However, if the interest rates and the overall offering outweighs the cost of the old debt, then there is no point in borrowing the loan
-Brand Desk Content
