If you’re in debt, clearing it as soon as possible should be a priority, as this obligation can seriously hinder the growth of your personal finances. However, focusing all your income towards clearing debt is a common mistake you should avoid as facing an emergency without having emergency funds in hand will definitely land you deeper into debt.
Alternatively, financing multiple types of debt at once can prove troublesome as it demands more of your attention to ensure you don’t miss payments. Missing even a single one can incur heavy fines, which can damage your credit score.
A smart way of tackling debt altogether is to consolidate it using a debt consolidation loan, which is also known as a personal loan for debt consolidation. This option can prove highly beneficial and you’ll find answers to the most commonly asked questions regarding debt consolidation below.
Is a Debt Consolidation Loan a Good Idea?
Consolidating your debt can work wonders in helping you manage your debt while making it affordable too. A debt consolidation loan will help you clear your on-going debts and will instantly put a stop to their growing interest charges.
It also narrows down your monthly repayments to one single EMI and often, this loan is of a lower interest rate than all your multiple debts put together. A personal loan for debt consolidation is a good idea since it is an unsecured, easy to apply for, and disbursed instantly, provided you meet personal loan eligibility criteria put forth by a lender of your preference.
Do Consolidation Loans Hurt Your Credit Score?
A properly serviced debt consolidation loan will not hurt your credit score. In fact, it will help you boost the score that was lowered owing to your existing debts. This loan helps you clear all your previous outstanding debts and leaves you with just one EMI to service.
Your credit score is hugely dependent on your ability to repay debt and so, when you pay your EMIs on time, your credit score will not be hurt. However, just as with any other loan, if you default on repayments, your credit score will take a hit.
How Much Does Debt Consolidation Affect Your Credit Score?
Debt consolidation can affect your credit score in a positive way, although when you apply for a debt consolidation loan, your credit score will dip slightly.
This is because you’ve added another debt instrument to your financial profile and until you prove that you’ve cleared off your other outstanding debts, your score will remain unchanged.
Additionally, you may be wondering ‘How long does debt consolidation stay on your credit report?’ As this is just another loan, it will remain on your credit report until you repay the loan in full.
When Should You Opt For a Debt Consolidation Loan?
There are two main instances when you should consider opting for a debt consolidation loan. The first is when the interest you’re currently paying is high and you can get a loan at a lower interest rate for a suitable tenor.
By doing this, you will be able to save a significant sum and ease the burden of repayment. The second instance is when you have multiple forms of debt. This could mean multiple credit card dues and loan EMIs, which tend to have different billing cycles.
Consolidating all the debt into one single EMI will significantly reduce the stress and effort you put into getting debt-free and if done wisely, this can even save you money.
Understanding your debt is key to identifying ways in which you can manage it. A personal loan for debt consolidation is among the better options you can avail due to the fact that you do not need to pledge any collateral.
Additionally, when you avail an option such as Bajaj Finserv Personal Loan, you can get a loan amount of up to Rs.25 lakh. This amount coupled with a flexible tenor and minimal personal loan interest rates is sure to make your debt payments a lot more manageable.