Know Debt Consolidation To Become Debt Free

Too many unpaid bills and credit dues pull your mind into multiple directions. This consumes a lot of your productive energy, making you feel and look haggard. It therefore, becomes easier when you opt for a good debt consolidation loan plan. Consolidation of all your smaller debts into one single loan amount, is a much simpler way to manage your finances. It is also a wise alternative if you are sitting at the threshold of bankruptcy.

There are two ways in which people normally choose to consolidate their debts. Sometimes unsecured debts like huge unpaid dues of the credit card, personal loan taken for urgent expenses or a luxury purchase, can be consolidated into a secured loan. Similarly, some secured debts like education loan, home loan and others can be amalgamated into one unsecured loan. Besides this, it is also possible to apply for a secured debt consolidation loan program, in order to pay off secured loans.

However, if debts get out of your hands, taking on a second mortgage like loan against property, loan against fixed deposits and others is also a wise move.
If you are planning to apply for a debt consolidation program, it is crucial that you acquire a clear understanding of the same.

What is debt consolidation?

Debt consolidation is when a person takes a specific loan amount (usually huge) to repay many other smaller debts. Through the fresh loan amount, the person pays off all unpaid dues, thereby narrowing down to only one monthly payment, in the form of EMI.

Low interest rate

For the ones who are planning to consolidate, smaller loans into one large loan amount, there is good news. Debt consolidation loan is usually available at a comparatively lower interest rate. One factor which makes loan repayment uncomfortable and large in magnitude, is high interest rates. When the interest adds to the initial loan amount, it becomes an inconvenient liability at the time of repayment.

Interest rates unaffected by market

There is one more “interest” related benefit which comes with a debt consolidation program. In other types of loans, interest rates are vulnerable to the market rate. However, with this kind of loan plan, you can stay relaxed since the rate of interest remains fixed. Fluctuation in the market rates does not influence the same.

Payment in one direction

Paying multiple bills every month takes a toll on your mind and energy. Debt consolidation simplifies the process of monthly payments. When you clear several other debts via the debt consolidation finance, you will be left with the monthly EMI payment of only one loan. This focuses your mind in a single direction, thereby channelizing your financial management.

Secured debt consolidation

Banks, financial institutions and other lenders are more co-operative with you, if you are applying for a secured debt consolidation loan. Let’s say you are unable to manage the repayment of your home loan, home improvement loan, and others. So, in this case, you take a loan against property or against a fixed deposit. Having stable collateral always increases your credibility in front of the lenders.