Loan issues? You can refinance existing credit with debt consolidation

Credit cards are a big part of our financial transactions on a daily basis. The facility of spending now and paying later is something that comes in handy more often than not. Right from daily dineouts to weekend getaways or any aspirational needs, we deeply rely on credit cards.

A significant increase of 26.5% in transaction volume, value, and average ticket size has been observed over the last year. And with the big announcement of UPI payments enabled through credit cards, our dependency on these debt instruments is going to grow inevitable.

Likewise, personal loans have been recognised as an ace up the sleeve in times planned or unplanned events. Along with enticing offers, brands and lenders have upped the bar by offering smooth onboarding journeys, end to end digital processes and instant access to credit within minutes.

While debt instruments give you the freedom of spending the money you are yet to earn, you have to be very vigilant to not misuse it. They are a blessing as long as you make timely payments and service them cautiously. One little misapprehension and you may find yourself walking right into a debt trap situation.

A solace to spiraling debt

As a part of a prudent financial plan, you must ensure that you do not have multiple debts at one time. If you have multiple debts or multiple credit dues spiraling out of control, debt consolidation is your getaway.

Debt consolidation is a financial tactic that helps club multiple loans and credit card outstanding bills against one single personal loan. One should just be aware of one’s existing loans foreclosure policies. Using one single personal loan to pay off all the dues has a plethora of benefits.

It is rather easy to service one loan as against multiple debts. It reduces the hassle of dealing with multiple lenders and due dates falling on different parts of the monthly calendar. One payment default can attract hefty penalty charges.

Low interest rate loan solution

We are well aware of the interest rates that credit cards attract. Not to forget the number of other charges involved. Debt consolidation helps move all the existing debts from a 36-45% interest rate to as low as a 15-18% interest rate personal loan. Clearing all high interest rate debts with one loan can help save quite a few bucks.

Since servicing one single loan will become a cakewalk, one due date, one lender to attend to and one EMI to repay, your chances of defaulting on your repayments will reduce. Making time payments certainly improves your credit score. Also, lesser the debts, better is the opinion of your credit profile.

Withholding debts that you cannot adhere to can end you up in a financially tricky spot. Though debt consolidation may be a temporary solace, it is not a permanent solution for one’s financial woes. Make sure not to use debt instruments as an extension of your paycheck and certainly not be allured by attractive offers and rewards. Always keep a check on your spending habits and plan your borrowings in order to maintain financial health at all times.

Data source – Reserve Bank of India (RBI) Data

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