Debt Consolidation

Personal loan is a highly popular credit product due to its ability to fund various expenses. While most people apply for a personal loan for marriage expenses, home renovation, medical emergencies, and other financial purposes, some might need a personal loan for debt consolidation. Personal debt consolidation loan refers to a process wherein an individual applies for a personal loan to consolidate their other existing unsecured loans and credit card bills. You can apply for debt consolidation loan online.

You can conduct your debt consolidation calculation with the Debt Consolidation Calculator available online on various platforms. To use this tool, you will be required to enter some details such as the balances, interest rates and EMIs (equated monthly instalments) of your existing unsecured debts, like personal loans, credit cards, etc.

After entering these details, the calculator will show results based on the figures you have entered:

• Total balance: The sum of all your debts you owe in total.
• Combined rate of interest: Your average interest rate for all the debts you have entered in the calculator.
• Total monthly payment: The amount you are paying monthly for these debts, including interest.
• When you will be debt-free: The amount of time required to complete your loan/credit card payments completely, based on your current balance and monthly payments.

Look at the comparison between your existing debts and the new debt consolidation loan.

Debt consolidation is the most beneficial when your new total loan payment is less than your existing total payment and you save on interest costs.

There are many avenues open to seek consolidation debt loans, including a debt management plan, personal loan, credit card balance transfer; etc. The route chosen by you depends on your requirement, your credit score, debt-to-income ratio and other factors.

Here are some common debt consolidation types:

Debt Management Plan

This loan is sought for reducing the interest rate you pay on credit card, lower your EMIs and eliminate debt in 3 to 5 years. These plans are commonly offered by non-profit credit counseling agencies, who receive rebates on interest rates from credit card companies. 

Personal Loan

This form of consolidation loan is usually offered by a bank, credit union, P2P (peer-to-peer) lender or even a family member or friends. Personal loans are mainly unsecured and do not require any collateral. For this reason, they often come at a higher interest rate. You can opt for personal loan debt consolidation if there are multiple personal loans running on your name and you find it difficult to manage their EMI payment.

Credit Card Balance Transfer

If you have multiple running credit cards, most credit card companies will offer you a balance transfer card. These cards allow you to transfer your existing balance from running credit cards to a new credit card and make payments at 0% interest rate for an introductory period (which is usually 12-18 months). Please note that usually a transfer fee of 3% to 5% of the balance transferred is involved for this process and that fee is added to your balance. Also, you must have a healthy credit score to be eligible. 

Here is how instant debt consolidation loans work: 

• You apply for a new loan and use it to pay off all or most of your existing loans/credit card balances. 
• Now you only need to make consolidate payments for the remaining balance of the consolidated loan over the decided tenure at a lower interest rate than what you were already paying.