"Wondering what is debt consolidation and how it works? Learn about debt consolidation loans, their benefits, and how they help manage multiple debts."
Published: 12 June 2024
Updated: 20 February 2025
Debt consolidation means bringing together all the running debt and making them one into a single new consolidated debt. This new debt consolidation loan is favourable in many terms such as lower interest rate, tenure, etc. Here is the amount received from the new debt consolidation loan for paying off other remaining debts.
The main aim of availing debt consolidation loan in India is to make the multiple repayment process easier by making them a single debt.
This blog will help you understand all about how debt consolidation loan works and what are the benefits of it.
Debt consolidation loan works by consolidating multiple debt obligations into a single loan. Here's a step-by-step complete explanation of how it usually works:
This is the first step to avail loan consolidation, you have to begin with assessing your outstanding debt including credit card bills, personal loans, medical bills, or any type of debt. Keep an eye on the total amount owed, interest rates, and monthly EMIs.
Research and consider the multiple consolidation options available to you. Personal loans, balance transfer credit cards, and house equity loans of credit are all widespread methods.
Select the consolidation strategy that best meets your needs and financial circumstances. In this process do consider interest rates, processing fees, payback terms and conditions, and any risks linked with each option.
Once you have decided on a consolidation strategy, all you need to do is apply for a debt consolidation loan.
If your application is approved, you will get funds from the consolidation loan. Pay off all your existing debts with this debt consolidation loan amount, thereby combining them into a single debt obligation to make the repayment process easier.
This is the final process where you have to manage the repayment of this new debt consolidation. After consolidating all your obligations you have to be alert so that you don't miss any payments, as delay in payments can affect your credit score badly.
Ragini owes Rs. 10 lakhs on her loans, with interest rates ranging from 18% to 25%. She resolves to consolidate her debts to make her payments and lower her interest rates. She applies for a debt consolidation loan with a lower interest rate of 10% after reviewing her options. She uses the debt consolidation loan proceeds to pay off her loan debt once they are accepted. She now has a single Rs.10 lakhs debt from the quick approval personal loan. Ragini can save money on interest and focus on repaying the consolidated loan more efficiently rather than paying different debts to different lenders, now she repays the same amount with a lower interest rate and a fixed repayment plan.
Credit score plays a vital role in availing loans and can be affected when you apply for various loans. The impact of debt consolidation on your credit score may vary depending on your repayment action of the debt consolidation. If you have a good record of timely payments on consolidated loans and you are handling the finances appropriately then the impact on your credit score will be positive. On the other hand, if you are careless in the repayment process of the consolidation then you may affect your credit score negatively.
There are various options for debt consolidation in India and you can apply for it online or offline. There are many banks and NBFCs providing consolidation loans:
1- Loan consolidation
A- Personal loans
B- Secured vs. Unsecured loans
2- Balance transfer on credit cards
3- Home equity loans
4- Loan against property
Here are a few situations where you can consider debt consolidation loan online:
If you are stuck with various debts that generate high interest like credit card balances choosing instant debt consolidation in India becomes an ideal solution. Putting all your debts under a single loan with a reduced interest rate will lessen your financial strain and allow you to pay them off more quickly.
Imagine you owe 10,000 on your credit card which carries a 22% interest rate. With a debt consolidation loan online at 10% interest you can create more manageable payments and reduce your total interest cost over time. When you consolidate high-interest debts you direct more of your payments towards the principal amount which helps you eliminate your debt more quickly.
If you have multiple debts you have to manage with different due dates and amounts, consolidating your debts will make your life much more manageable simply because you do not have to account for many monthly paymentsIt reduces the risks of missed payments and makes it easier to trace since you will make a single payment monthly. Suppose you have three credit cards which have different dates and amounts due, you can have debt consolidation using a personal loan. You are going to be worried about having one payment, so it is straightforward to manage the finances and accounts for your payables. Therefore, you prevent missing payments and thus hurting the credit score.
As long as you receive steady income you can use the debt consolidation loan for payments. Ensure you can manage the monthly payments before deciding to take out a consolidation loan. If your income remains inconsistent you should avoid combining debts because it may make your financial condition worse. You should wait until your income becomes stable before proceeding.
There are times when people are under many debts and it becomes difficult for them to manage so many debts at a time. It is very important to manage debts to maintain your financial history or creditworthiness. The best way to manage these ongoing debt is debt consolidation, you can handle all these debts by combining them as one into debt consolidation with low interest rates. Debt consolidation helps you in seeking financial stability by managing your debts. Consolidating credit cards or different loan debt can be an excellent solution for people who are trying to handle various credit cards or loan obligations. It simplifies the repayment process, thus saving money over time.
At My Mudra, we understand the importance of simplifying financial management. Just as we help individuals to avail of holiday loans and marriage loan, our debt consolidation services aim to bring clarity and ease to your financial life. By consolidating your debts, you can focus on what truly matters without the burden of juggling multiple payments.
Also read: How Debt Consolidation Can Save Your Money
