4 mistakes to avoid when you avail a debt consolidation loan
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4 Mistakes to Avoid When You Avail a Debt Consolidation Loan

  • Highlights

  • Check your eligibility before applying

  • Ensure you have a plan for repayment

  • Refrain from taking on more debt

  • Assess quantum of debt beforehand

Repaying multiple outstanding debts, each with their own interest rates, is a task that needs close monitoring and financial attention. Keeping track of monthly payments is key, as even a minor miscalculation can result in you defaulting on repayment. Apart from affecting your finances, this will also impact your credit score.

Taking a Personal Loan for Debt Consolidation, such as one from Bajaj Finserv, is a great way of paying off debt fast. However, you must have a sound plan in place to ensure that you aren’t simply transferring your debt, or worse, getting yourself into more debt in the long run. Here are some common mistakes to avoid when paying off debt, so you can make the most of your debt consolidation loan.

Check your eligibility before applying for a debt consolidation loan

A large amount of outstanding debt is likely to negatively impact your credit score - especially if you have defaulted on payments. This, in turn, can lower your eligibility for a personal loan, and the financial institution may demand significant collateral from you. What’s more, the personal loan interest rate that you will have to pay may be higher as well. As a result, taking the loan will do more harm than good. So, it is important to make at least minimum payments on your debts to boost your credit score before applying for a debt consolidation loan.
Additional Read: Are You Eligible For A Personal Loan For Debt Consolidation?

Keep your spending in check and eliminate credit card usage

Once you’ve have qualified for a debt consolidation loan, it may seem like you’re free from debt. While debt consolidation loans do make payments a lot easier, it is important to remember that you are still paying off debt and therefore you need to be financially responsible. So, manage your spending, avoid luxury expenses and definitely do not use your credit card until you have repaid most of the outstanding amount.

Personal Loan for Debt Consolidation

Have a loan repayment plan in place

Debt consolidation makes repaying debt stress-free, largely because you have only one EMI and interest rate to keep track of. However, unless you plan your budget while factoring in the new EMI in advance, you run the risk of defaulting on your loan repayment. This will perpetuate a cycle of bad debt all over again.

On the contrary, planning in advance will ensure that you aren’t transferring your debt from one source to another, but instead are actually addressing your long-term ability to pay it. Use a loan EMI calculator to learn what your new monthly payment will be. You may find that the new debt consolidation loan is increasing your overall loan tenor. But, keep in mind that it will make each monthly payment a lot more affordable.

Small debt amounts aren’t worth the hassle

While it may be tempting to consolidate all your loans into a single EMI each month, to avoid the chore of multiple repayment calculations and deadlines, you must first assess your current state of debt and whether it warrants consolidation. If you’re well on your way to clearing your debt, and expect to do so within six months to a year, then debt consolidation may not be worth it for you. However, if you have several long-term loans and are struggling to keep track of them, you may find taking a debt consolidation loan to be a much more economical and easy option.

So, when you consider debt consolidation, don’t forget to keep these factors in mind. Following these preliminary measures will ensure that you choose a debt consolidation loan for all the right reasons.
Additional Read: Save On EMIs by Consolidating Your Existing Debts

To simplify the personal loan application process and to make availing financing easier, Bajaj Finserv brings you pre-approved offers on personal loans and other financial products. Share a few basic details, check your personalized pre-approved offer, and avail the financing you need.

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