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.
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
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