Your income has come down because of the global pandemic, recession, or setback to your industry. You cannot pay off bills of your credit cards and other EMI of personal loans, car loans, home loans, and other debts. You are in a debt trap finding it difficult to get out?
A debt consolidation loan solves your problems if you have debt from different sources. Find out why the loan consolidation trend is growing worldwide. Top economists predict it to maintain growth for another 2-3 years.
Debt Consolidation Meaning in Easy Terms
Many people have multiple credit cards, personal loans, car loans, home loans, and debts from other sources. These loans from different lenders have different terms and interest rates.
By debt consolidation, we can combine different loans into a single loan. Instead of paying several bills of credit card and EMI, you pay one loan at a lower interest. This can relieve your burden during the current economic crisis.
A debt consolidation loan can be a great help if you are struggling to manage your current debts. It has these benefits:
- You plan the events, so you can set it
- Debt becomes convenient because of a single EMI
- You save on interest and late payment fees
- With systematic repayment, your CIBIL score will grow
How to Prepare for a Debt Consolidation Loan
You should take stock of the present situation before finding the debt consolidation. This assessment ensures that you can afford the new EMI along with saving money in the long term.
You should look at your present income, repayment capability, and terms of your lenders. Check the lock-in period and foreclosure charges of your current loans. If a loan is in the lock-in period, speak to the lender. Convey the situations surrounding which you want to foreclose the loan. Try to get relaxation on the lock-in so you can consolidate your loans.
Fundamentals of Debt Consolidation
There can be insecure and secure loan consolidation. Pick a debt consolidation based on your loan size and income segment.
Unsecured Loan Consolidation:
You should use it for small loans: e.g. Consumer durable loans, credit card dues, and personal loans. You can take a bigger personal or business loan. The new bank will make cheques against your existing loans. Tenure for such unsecured loans is 4-7 years.
Few institutes offer unsecured loans as an overdraft. You have the liberty to pay only interest during the troubled time. But when your income comes back on track, start paying the principle to wipe out debts.
Secured Loan Consolidation:
You should take it for bigger loans as credit card dues, PLs, BLs, car loans, home loans, or loans against property. You can get a fresh loan against property or take a top-up on a home loan or home equity. The top-up money will close your smaller loans. Tenure of secured loans can be up to 15 years.
Besides mortgages, gold shares, vehicle, or business receivables can help you unify loans.
Lenders Love Credit Score, What if You Don’t Have it
To take a debt consolidation loan, you must have an adequate CIBIL score. You can still work on a few things if you are late in planning this. Loans from these methods are slightly expensive but need fewer or no credit underwriting.
Trying Peer to peer lending is an excellent choice. Or take a loan on your PF account, insurance policy, gold, or other investment.
Your credit score will boost when you pay off regularly for 4 to 6 months. Taking help from your colleague or relative is OK. You can consolidate your loans at better rates along with top-up after a lift in credit score.
Focus on the Right Things
At this distressing stage, focus on alternative sources to supplement your income. Take these steps to get out of the problem quickly
- Review your budget and cut unnecessary expenditures
- Differentiate between need v/s want.
- For leisure, find fun with DIY and family activities.
- Make further spending on your cards only under an emergency.
- Look for new channels to boost your business.
- Consider taking freelance or part-time practice.
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I need loan for this purpose, But I did not paid my EMI in lock-down. Where can I reach you?