How Does a Personal Loan Help in Debt Consolidation?

5 MinsDecember 24, 2019

Expenses usually hit you when you least expect them. At times, you may find yourself short of funds to meet these expenses, forcing you to borrow money or take a loan. For instance, a family member requiring sudden hospitalisation, an increase in your child’s college fees or deposit for your home rent are expenses that may come up suddenly and may not allow a lot of time for planning. There could also be impulse spends such as buying the latest music system or mobile phone, a family holiday, etc. You end up taking a personal loan or using your credit card to meet such needs. While using multiple credit cards has its benefits; irresponsible or reckless use could pull you into a credit card debt trap. The inability to pay your credit card dues in full (i.e. paying only a part of the dues) attracts a very high-interest rate.

debt consolidation

But too many loan accounts and outstanding dues thereon could prove to be a debt burden, and it can impact your credit score and financial wellbeing. If you are bearing excessive debt burden, particularly where high-interest cost is involved, ‘debt consolidation is a worthwhile proposition.

What is debt consolidation?

Debt consolidation refers to reducing the number of loan accounts to save hard-earned money from high-interest outgoings and enable you to repay debts sooner.

That said, debt consolidation should be planned prudently; in such a way that the loan/s bearing a high-interest cost is repaid with a fresh loan offered at a lower interest cost and the best terms.

How a Personal Loan can help in debt consolidation?

Say you have outstanding dues on multiple credit cards that are attracting a very high rate of interest, plus an existing high-interest personal loan. In such a case it would prove meaningful to consolidate all the debt into one Personal Loan. To do so, avail a fresh Personal Loan from a bank that offers a lower interest rate. Use this loan to repay the credit card dues/other loans where you are bearing a high-interest cost. Also, make sure the new loan has beneficial features such as flexible repayment tenure, zero-prepayment charges and zero foreclosure charges. If you plan wisely, you can invest the money saved on the interest outgo to earn returns. This will make life easy for you.

A Personal Loan is a smart way to do debt consolidation. A Personal Loan is rightly referred to as “a loan in need”. It provides easy access to money when you need it the most. Moreover being an ‘unsecured loan’, you do not have to mortgage your existing assets (house, car, investments, etc.) to avail of a Personal Loan.

Axis Bank’s 24x7 Personal Loan simplifies the process even further by offering a completely online loan application and disbursal process with minimal documentation for new customers. Existing Axis Bank customers can get instant disbursal with zero documentation. New customers will have to undergo minimal documentation.

What matters for the bank while granting a Personal Loan is your credentials, the nature of your job, company you work for – whether private limited, your loan requirement, your net monthly income, your residual working lifespan, and your repayment capacity (exhibited by your credit score).

Key benefits of debt consolidation:

1. Repayment of loans get simplified, with only one or two loan account EMIs (Equated Monthly Installments) to handle

2. Your debt burden comes down, as interest borne on loan/s is optimally reduced (in turn, easing your total EMI commitments)

3. Helps you repay your loan sooner and become debt-free

4. You possibly put an end to nagging collection calls

5. And potentially improves your credit score

[Also Read: How to check your Credit Score]

So, do not postpone your debt consolidation in the interest of your financial wellbeing. Avail of a 24x7 Personal Loan from Axis Bank today! For existing customers, the loan is sanctioned instantly and usually disbursed within the same day, if you satisfy the eligibility criteria. The process is entirely digital and all it takes is a few clicks. You can apply through your internet banking account or Axis Mobile app.

Axis Bank grants 24x7 Personal Loans anywhere between Rs 50,000 to Rs 15 lakh with a flexible repayment tenure ranging from 12 to 60 months. If you need a smaller amount for a shorter period, you can avail an XS Personal Loan which offers Rs 10,000 to Rs 1 lakh for tenures between 3 months and one year.

As a prudent borrowing exercise, first, assess your loan requirement (borrow with means), and then ascertain how much the EMI on your Personal Loan will be using Axis Bank’s Personal Loan EMI calculator --- an effective online tool that provides the answer in split second.

Get personal loan passed quickly:

1. Maintain a healthy credit score (Higher the credit score (750 and above) of your credit report, the better it is)

2. Do not submit multiple loan applications (It can weigh on your credit score)

3. Make sure you have not availed of a personal loan in the last six months (It does not depict a very healthy picture of your personal finances)

4. Make sure your EMIs do not exceed 40-50% of your net take-home pay

5. Avoid creating a credit card debt (Use a credit card with discipline and pay all your dues on time)

6. Maintain a fair balance between secured and unsecured loan (since it weighs on your credit score)

After you have availed the Personal Loan, say you wish to foreclose or pre-pay, here’s good news: Axis Bank currently levies no charges for part-prepayments and foreclosure of a Personal Loan.

To help you consolidate debt and reduce the debt burden, availing a Personal Loan offered at a lower interest rate is a worthwhile proposition, instead of utilising your existing investments assigned for other important financial goals such as children’s future (their education and marriage needs) and your retirement. In due course of time with the necessary financial discipline, you will be able to repay the loan.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.