Managing multiple debts can be overwhelming, especially if they are spread across various credit cards, lenders and loans. Remembering all the due dates, worrying about interest rates, keeping track of finances can make you feel helpless.
One solution is getting a personal loan to consolidate all your debt, even though it might feel counter-intuitive. But just like any big financial decision, this one comes with pros and cons.
- Benefits of consolidating debt via a Personal Loan
1. Simplified Payments
Instead of tracking varied payments across different lenders or portals, a Personal Loan consolidates your debts into one fixed monthly installment. This makes it easier to manage your finances and avoid missing payments.
2. Fixed Repayment Terms
Personal loans come with fixed repayment terms, typically ranging from 12 to 60 months. This allows you to plan your budget better, knowing exactly when your debt will be fully repaid.
3. Improved Credit Score
By consolidating and consistently paying off your debt, you can potentially improve your credit score over time. It also reduces your credit utilization ratio, which is a key factor in credit scoring.
4. Stress Reduction
Debt consolidation helps alleviate the mental burden of managing multiple debts, giving you peace of mind and a clearer path to becoming debt-free.
1. Need for Strict Discipline
Paying off credit cards with a loan can free up your available credit— but without discipline, it’s easy to fall back into the habit of over-spending. You have to adhere to strict guard-rails so as not to fall into the trap of re-accumulating debt.
2. Higher Monthly Payments
While the loan may help save money in interest, fixed monthly payments can be higher than minimum payments on credit cards, potentially putting a strain on your monthly budget.
3. Not an Over-arching Solution for Debt
If you have debt with extremely high interest rates or your credit score is very low, a Personal Loan may not offer you the savings you need. You have to take a step back and examine your entire financial situation before deciding on debt consolidation.
A Personal Loan for debt consolidation can be a smart move once you’ve assessed your spending habits and financial discipline. If you're confident in your ability to stay on track, debt consolidation could be your first step towards a debt-free future.
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Disclaimer: The article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of The South Indian Bank Ltd. or its employees. The South Indian Bank Ltd and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/non-financial decisions based on the contents and information’s in the blog article. Please consult your financial advisor or the respective field expert before making any decisions.