Debt consolidation is the act of using a new loan to pay off older debts and liabilities. By combining multiple high-interest debts into one, you may be able to save money, pay lower EMIs, and manage your finances better.
Here’s all you need to know about debt consolidation:
1. It lets you pay a range of debts with one affordable loan
Debt consolidation helps end the hassle of repaying multiple debts. You can pay all your debts, such as credit card balances and other borrowings, using a single personal loan for debt consolidation.
2. It makes it easier to repay your loan
Debt consolidation does not eliminate your debts; it just makes them easier to repay. Once you pay your existing debts, you still must repay the consolidation loan. This means that you will have to make EMI payments throughout the tenor to repay the amount that you have borrowed entirely. The process aims to make you completely debt-free.
Additional Read: 4 Ways to consolidate your debt
3. It requires you to sign a debt agreement
A debt agreement is a contractual agreement between the borrower and the lender of a financial instrument. The terms of this contract govern your ability to make additional borrowings. This means that the amount of the consolidation loan needs to be used only to repay outstanding debts. This agreement also binds you to pay the debts over a fixed period, without any further delays. Any further delays in repayment of the debts can result in the lender charging you a range of fines and penalties for delayed repayment of the loan.
4. It restricts you from borrowing more during the consolidation process
During the debt consolidation process, you must refrain from borrowing any new loans. You can only borrow a single loan to consolidate your debts. Borrowing more debts during the repayment process can make you fall back into a circle of unending debt.
5. It is affordable
Debt consolidation is affordable because these loans have better flexibility and benefit from nominal interest rates. Apart from that, repaying a single personal loan is much lighter on your pocket than having to pay various debts at varying rates of interest. The consolidation loan also offers you a range of other benefits, including a unique Flexi loan facility that lets you pay just the interest as EMIs. These facilities simplify the task of clearing multiple debts with ease.
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