Credit cards have made it easy to buy first and pay later. However, many get caught in the loop of paying Equated Monthly Installments (EMI), missing EMIs, and paying penalties.
High-cost debt is stressful and you may have to dip into your savings to pay the EMIs. There is one way to get out of this situation, and that is to take a debt consolidation loan.
It is a loan, generally unsecured, to pay off other liabilities and debts. In debt consolidation, multiple debts are combined into one single, large piece of debt and then paid off with a debt consolidation loan taken at a low-interest rate and more favourable terms.
Here are 5 benefits of debt consolidation:
1. Pay a Single EMI
When you consolidate your debts into one personal loan, you will have to pay a single EMI. You won’t have to worry about keeping track of various EMI dates or missing any of the EMIs.
Just make one single loan payment every month and pay off your debts. Moreover, this reduces the risk of penalties on late payments or defaults that can be a result of mismanagement of multiple EMIs.
2. You Get Lower Interest
When you consolidate your debt, you will have to pay a fixed interest on a single loan. This interest rate will be much lower than the interest you would pay on multiple loans.
This is why repayment of a personal consolidation loan in EMI becomes more cost-efficient.
3. Helps You Reduce Your Monthly Outflow
Consolidating all the high-interest loans with an affordable personal loan will lower the EMI amount you have to pay. If you choose a longer tenure, the EMI amount will reduce further.
This will help in reducing your monthly expenditure. Therefore, you can put a larger portion of your income towards savings and retirement.
4. Easy to Meet Payment Deadlines
As the name suggests, a debt consolidation loan combines all the debts in one lump sum. This means all your credit card payments, loan payments, etc., will be consolidated into one amount. So, you won’t have to keep track of multiple deadlines for multiple loan payments.
Since you will have one payment to make, you will have only one deadline. This will help you manage your repayment more efficiently.
5. Helps in Improving Credit Score
One way to improve credit score is by making regular payments. If you have multiple loans and you are unable to make timely payment for even one, it will affect your credit score. And a poor credit score will make it difficult for you to borrow in the future.
With a debt consolidation loan, you will have to make just one monthly payment. Thus, by making timely payments on the loan, you will improve your credit score.
Another thing that consolidating debts will do is reduce your stress a little bit. When you don’t have to constantly worry about when to pay, how many EMIs to pay and how much to pay, you will be a little more relaxed. While this may not be a financial benefit, it’s a true mental health benefit.