How Can A Personal Loan Be Used For Debt Consolidation?

personal loan

personal loan

Keeping track of outstanding debt, multiple due dates, interest rates, and repayment terms can take time and effort. Missing one payment can affect your credit score and future borrowing opportunities.  

If are facing difficulties in managing your debt, you can consolidate your monthly outgoings into a single transaction with a new loan. It can be a great way to simplify your financial life and maintain good credit. Moreover, paying back what you owe each month will make it simpler. It’s important, however, to ensure continuity and timely payments on all bills until you’ve streamlined your loan.

Working on a Personal Loan for Debt Consolidation

A Personal Loan is a debt that can be utilised for almost any purpose. You can obtain the lump sum and make regular payments over a specified period. Personal Loans are typically unsecured. This means they are not secured by collateral, and do not expose you to the risk of losing your assets.

Some borrowers obtain Personal Loans and use the proceeds solely to refinance their existing loans. For this reason, the term “debt consolidation loan” is frequently used. Consolidating debt with a Personal Loan entail paying off all other debt, combining it into one manageable payment. The monthly instalments continue each month until the consolidated debt is paid off.

Benefits of Using a Personal Loan for Debt Consolidation

  • One monthly payment: Keeping track of several monthly debt payments can be challenging. A debt consolidation loan consolidates your debts and allows you to make one monthly payment.
  • Lower interest rates: Personal Loans frequently have higher interest rates than secured debts but lower rates than credit cards.
  • Pay off debt faster: A Personal Instant Loan with a lower interest rate allows you to save money and pay off your debt faster.
  • Increase your chances of getting another loan: Increase your available credit by using a Personal Loan to consolidate debt, which lowers your credit utilisation ratio. 

The Ideal Time to Get a Personal Loan for Debt Consolidation

A credit card debt can be met through a debt consolidation loan. Since instant Personal Loans have lower interest rates than credit cards, it is easy to manage and much recommended. If you meet the following criteria, you may be a good candidate for a Personal Loan:

  • You have excellent credit: The better your credit, the more likely you will meet the best interest rate you will get on your loan. The lesser your interest rate, the less you must pay on top of the borrowed funds.
  • Your spending is under control: A Personal Loan will not help if you do not control your spending. It may cause you to incur additional debt. Examine your finances and calculate the EMI budget using the Personal Loan Calculator, ensuring you can afford the loan and pay off debts.

Other Ways to Consolidate Debt

1. Loan For Home Equity

When you own your home and owe less on your home loan, you could opt for home equity. You can use the lump sum from your home equity loan to pay off your existing debt. This loan will allow you to move to a single monthly payment on the new loan.

In this case, your home serves as collateral for home equity loans. The loan provider will view the loan as not risky. It will result in lower interest rates than unsecured loans such as Personal Loans. However, there is a probability that you might lose your home if you fail to make the payments on the home loan.

2. Balance Transfer Credit Points

It is used to maintain a few credit card balances. Many credit cards offer 0% APR for a set period, usually between 12 and 21 months.

This credit transfer is an excellent way to consolidate your existing credit card debt into a manageable monthly payment. However, you might not be approved if there is a lot of debt on the credit card. Then the whole amount for balance transfer is not possible.  

Conclusion

A Personal Loan could be an excellent way to consolidate your debt, but it should be managed carefully. Examine your debt situation to see if a Personal Loan would be the best option. If not, consider a home equity loan, a balance transfer, or a debt management strategy.