You borrow money to manage unexpected expenses or unforeseen financial emergencies. But sometimes, the situation gets complicated, and you face difficulty in repaying the borrowed money. It starts piling up and leaving you in a complete financial mess. Loans defaults, credit card bills, and even personal loan EMIs can contribute to the situation.
Managing all these expenses at a time can be challenging. At this juncture, debt consolidation loan emerge as a silver lining. It is the process of consolidating your multiple debts into an umbrella scheme of a single loan. While looking for it, do not forget to check your CIBIL score for a Personal loan to avoid any obstructions.
What is the Whole Point of Debt Consolidation?
Debt consolidation lets you convert all your individual debts into a single loan. Doing so can make the repayment processes more transparent and seamless. Furthermore, a debt consolidation loan converts a number of high-interest loans into a single low-interest loan.
For instance, you may be aware of the exorbitant interest rates you would have to pay for credit card defaults. Likewise, the individual debts you owe may have varying interest rates. One loan to cover all these obligations can be helpful in this case. You will not require to handle multiple debts, rather, you can bring all of them under one loan. You can enjoy the benefits of a single repayment plan at substantially low-interest rates by converting all your debts into a single debt.
Mistakes to Avoid in a Debt Consolidation Loan
A debt consolidation loan is not the magic bullet to all your financial problems. Instead, it is one of the effective ways to reduce your financial burden to an extent. However, you still need proper financial planning to make an informed decision. Avoiding some common mistakes while opting for a debt consolidation loan is essential.
1. Irregular Spending
Multiple debts often reflect irregularities in your spending behaviour. You should keep a check on your bills and analyse the pattern of your repayment schedule. Spending on trivial and unnecessary items may impose an extra burden on your finances. Choose wisely and practice good financial hygiene to make the most of your debt consolidation loan repayment.
2. Choosing Longer Repayment Tenures
Loan repayment is indeed a slippery slope. However, choosing the best repayment schedule according to your financial stability and capability works best. Though you initially feel that longer repayment schedules work the best, think twice. Despite incurring lower amounts on a monthly basis, the cumulative rate of interest will be on the higher side for longer repayment tenures. If you have a stable income source and wish to cover existing loans through another loan, opt for shorter durations for repayment.
3. Hasty Decisions
The crux behind choosing it not only lies in reducing the processes involved in loan repayment. It is more about reducing the interest rates and thereby being able to make cheaper repayments. The method also lets you choose a single card, reducing the number of boxes to be checked. However, it is also important to ensure that once your credit balance reduces to zero, you won’t be motivated to spend more. Spending way too much after consolidating will only invite more debt.
4. Not Checking for the Miscellaneous Expenses
It calls for limited charges and additional fees while consolidating your loans. However, it is important to be aware of these upfront charges. These include origination fees and prepayment penalties. Loan origination fees are normally charged by financial institutions to cover the miscellaneous expenses of loan processing. These include charges for processing your debt consolidation loan, preparing the necessary documents for the loan, and other miscellaneous costs.
Conclusion
When you check your CIBIL score for personal loan, impending debts can yield anti-climatic results. However, managing your finances wisely, with the incorporation of innovative methods like debt consolidation loans, can yield better financial outcomes.
Read also: Loan Essentials
