Debt consolidation relates to the process of taking out a new loan to pay off other debts, generally unsecured ones. Manifold debts are merged into a single one in which the payoff terms are favorable to you. A debt consolidation loan is that unsecured personal loan which is taken to combine all other debts into one.
It is most often used to combine and pay off credit cards, personal loans, student loans, and other debts.
How does it work?
A majority of borrowers apply through their bank, credit card company, or credit union for a debt consolidation loan.
It is the perfect place to start, given that you have a great relationship or payment history with your institution. If you are rejected or turned down by any chance, you can explore the private mortgage companies or lenders.
Creditors are compliant in doing this for numerous reasons. Debt consolidation maximizes the plausibility of soliciting from a debtor. These loans are generally granted by financial institutes such as banks and credit unions. However, there exist other functional debt consolidation service institutions that grant these services to the general public.
The essence of getting a debt consolidation
No collateral is required to acquire a sizeable fund
Personal loans are unsecured loans. There is no need to commit your valuable assets and then keep losing your precious sleep, thinking about the time to pay off when you take a personal loan.
If your credit history has a good record, and you have a good relationship with your financial institution, you can get the consent for a sizable sum adequate to repay your current dues without worrying about collaterals.
Interest rates are reduced on your outstanding dues
Short-term continuances like credit card dues usually come with substantial charges on pending amounts. Their collective effect can cause your debts to rise, and if you are already coping up with repaying your previous debts, the added charges can obviously be a burden you’d rather avoid.
Using a personal loan with a reasonable interest rate for debt consolidation empowers you to dispose of enormous penalty charges and proposes a cost-efficient solution for returning dues.
Improve your credit scores
Maxing out your credit cards, and therefore, credit utilization rate, negatively impacts your credit score. Credit utilization is an estimate of the volume credit you use out of the total limit made available to you. A personal loan is, however, not considered in your credit utilization.
You can dramatically reduce your utilization rate by debt consolidation and make timely repayments to boost your credit score.
Enjoying a longer tenure to repay the monthly dues
Most financial institutions offer repayment tenures ranging from 1 year to 5 years for personal loans. Hence, you can easily relieve the strain on your budget by going for easily equated monthly installments (EMI) over an extended period.
Things to Keep in Mind
Let’s now look at the few things you need to keep in your mind while you are consolidating your debt:
- Recognize the pending loans and other debts. Be mindful about the total due amounts
- Have a thorough look at the tenure
- Go for a personal loan or a debt consolidation loan from convenient options like EarlySalary
- Most importantly, i.e., when you receive your loan, stick strictly to the payment cycle.
How to Get a Debt Consolidation Loan
The conventional method for a personal loan application involves visiting the office and filling out essential forms. It is often mandatory to submit the KYC forms in the form of a hard copy. They usually take a significant amount of time to complete processing.
But the process of consolidating debt (i.e., getting a single loan to manage all your loans) doesn’t need to involve visits to offices, especially not in the post-COVID era. Those searching for a faster application process for an online personal loan.
An increasing number of people now seek online services such as EarlySalary and get a loan without stepping out of their homes. An online personal loan is the best approach for here – it occupies far lesser processing time and even involves no physical documentation.
Online personal loan apps like EarlySalary have revolutionized the way we look at loans. Not only do we get a personal loan with instant approval, but the process is entirely online, and without hassle. For more information on the benefits of EarlySalary loans and how to avail them, click here.
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