Pros and Cons of Debt Consolidation with a Personal Loan

Today, it is essential to manage your finances if you want to use your hard-earned money in the best possible way. Financial mistakes can prove to be very costly in the long run. Many of us have come across different loans like personal loans, car loans, home loans, education loans, or other types of loans. We all wish to pay off these loans as soon as possible. One convenient way to do so is by debt consolidation.

What is debt consolidation?

Debt consolidation is a process that lets you combine all your different types of loans into a single loan. If you have different loans like home loans, personal loans, and car loans running, you have to make monthly payments to these loans separately. With the help of debt consolidation, all these different loans can be clubbed into one single loan. You then have to make just one monthly payment for all the loans. This makes it easier for you to manage your loans and finances.

Isn’t this a good idea?

Debt consolidation is a remarkable idea. It is highly beneficial, especially if you have different types of loans running. It will help you save time and money, making it efficient and hassle-free for you to manage your different loans in one go. To understand the full advantages of debt consolidation, let’s have a look at the pros and cons.

Pros of debt consolidation

· Reduces interest rates

One of the most significant advantages is that if you can get a personal loan interest rate that is lower than the loans you have, you can save a lot of money over the years. Also, by using your personal loan EMI calculator, you can see the total monthly payments come down with the reduced interest rates.

· Clarity about the duration of the loan

When you have many loans running, it won't be easy to calculate exactly when you will be debt-free. However, with debt consolidation, you will have one loan, and you will know the exact time when you will become debt-free.

· Improves credit score

Different loans have different payment timelines, and thus it is difficult for you to make all the payments on time. By consolidating your loans with a personal loan, you can make just one payment without worrying about the different timelines. This helps improve your credit score and lower your credit utilization rate.

Cons of debt consolidation

· Fees

In some cases, you might have to pay certain fees to secure a personal loan. This fee depends on the lender you choose. There could be application fees or prepayment fees for paying off the loan early.

· Collateral

To get lower personal loan interest rates, you might have to put some of your assets as collateral. This could prove to be risky as if you are unable to pay off the debt, you could lose your asset to the lender.

· Higher Interest

Since you are taking a new personal loan for debt consolidation, you may take the loan for a higher duration. This will result in you making higher interest payments, which will cost you more money. So, it is crucial to use the personal loan EMI calculator to find out exactly how much you are paying throughout the loan.

Bottom Line

Debt consolidation is an excellent way of handling all your loans in one place and achieving financial fitness. However, to achieve this, it is important to get lower personal loan interest rates.