What is a Debt Consolidation Loan? | Apply Online for a Loan

What is a Debt Consolidation Loan? | Apply Online for a Loan

People often apply for Debt Consolidation Loans when they are unable to maintain their heavyweight debts. It is basically an effort to combine multiple short term debts. In short, if you have a lot of debt and a poor credit score then you should apply for a Debt Consolidation Loan. 

What is a Debt Consolidation Loan?

Debt Consolidation is a smart process where you borrow money from your lender with the intention to pay off multiple smaller debts (like credit card bills, consumer debts)  with a high rate of interest that you owe currently. So you apply for Debt Consolidation Loan to pay off the other small debts or short term loans and keep just one monthly installment with a lower interest rate. Let’s understand this matter deeply with the help of an example.

Suppose you have two credit card bills worth Rs. 5,000 and Rs. 3,000. So you apply for the Debt Consolidation Loan of Rs.10,000 to pay these high rates of interest debts and continue paying only one installment that is of a lower interest rate and for a longer time period. Isn’t this easy tackling the load of your debts? 

Advantages of Debt Consolidation Loans

There are so many advantages of Debt Consolidation Loans, including,

Lower Rate of Interest

The first and most beneficial side of Debt Consolidation is the interest rate. As the main purpose of this loan is to repay the multiple short term loans or debts, it provides you the money with a lower interest rate.

Long Term Loans

Another benefit of Consolidation Loans is the time period of repaying the borrowed amount. As you apply for Debt Consolidation Loans, you pay off the short term debts and continue with only one monthly installment. So it provides you with the long term facility to reduce the load of your debs.

Easier to Manage the Payment Deadline

When you get the Debt Consolidation Loan, you only have one fixed monthly installment to pay. So it becomes very easy for you to handle the payment deadline. 

Stress Reduction

Multiple heavy weighted debts or loans often take away our sweet sleep and gives us sleepless nights. We worry over our financial condition and the stress level gets increased. But with Debt Consolidation Loans, we are less worried because we have borrowed money only from one particular source. 

Chances of Improving Your Credit Score

Credit scores are important when you are lending money from your money lender as he would examine your previous credit scores and make a decision on whether to give you credit or not. With Debt Consolidation Loan, you get a chance to improve your credit scores as you pay all the short term outstandings.

Expected Fixed Payment Amount

Debt Consolidation helps us to manage our income as we know the amount is fixed that we are going to pay at the end of each month. Besides that, our monthly expenditure also gets reduced. 

However, just like every coin has two sides, Debt Consolidation Loans have some disadvantages as well. Let’s take a look at them.

Disadvantages of Debt Consolidation Loans

  • The borrowed amount of money is the same as before.
  • For some people, the time period can be an issue. As you have to spend 2 to 5 years in the Debt Consolidation Program. 
  • The borrowed amount of money will not get reduced or forgiven. 

As you can see, the Pros are much more than the Cons. 

Types of Debt Consolidation

There are two types of Debt Consolidation Loans, viz., Secured Loans and Unsecured Loans. 

Secured Debt Consolidation Loans

Secured loans are those which are secured to the equity that your property contains. As a secured debt consolidation loan drags your property to the line if you fail to keep your words, this is only available for the house owners. 

Unsecured Debt Consolidation Loans

Unsecured loans are the ones that you get when you don’t have your own property or you don’t want to risk the property you own. In this case, you have to borrow a lesser amount of money. And that is an unsecured loan for you. 

If we compare these two, Unsecured Debt Consolidation Loans are availed by most of the people. Because many people do not own a house or property and the ones who do, don’t want to risk that.

Is it Possible to Get Debt Consolidation Loan With a Bad Credit?

We mentioned Bad Credit in the introduction part. So let’s take a quick view on Bad Credit. Bad Credit is an individual’s poor credit history. If an individual fails to repay the credit bills on time, then on the Credit Reference or Credit Report, it will be shown as poor Credit Scores. 

Now, the answer to the question is yes. Though there are exceptional cases, there exists some credit brokers or money lenders, who don’t consider your bad credit report while lending you money. In that case, getting the Debt Consolidation Loan will depend on how bad your Credit Report is. If you had recently visited the County Court Judgement or CCJ, there are chances for your application to get canceled. 

How Does Debt Consolidation Loan Help You to Fight The Financial Battle?

You decide to apply for a Debt Consolidation Loan when you are not able to take the stress anymore that is caused by the multiple short term loans or debts. These multiple, smaller debts come with a high rate of interest and pressurize you to repay them within a short time. 

If you make up your mind to take the Debt Consolidation Loan, it will help you to solve this problem by providing you with a good amount of money. So that you can repay all your creditors in full and keep just one monthly fixed installment. This helps you to fight the financial battle that you are currently fighting and gives you a chance to improve your financial condition. 

As mentioned in the advantages section, through a Debt Consolidation Loan, you are able to improve your credit scores. So, in the future, if you ever need any kind of financial support from any trusted source, you can get that easily. 

Also, a Debt Consolidation Loan allows you to budget and spend according to that. As you have only one fixed installment to pay every month and have no other debt load in your head, it becomes easy to maintain a budget. 

Should You Go For Debt Consolidation Loan?

In the world of business, the term ‘’Credit” is very common. Credit can solve many of your problems. And when you get too many of them, it itself becomes a problem. You can simply solve this issue by applying for a Debt Consolidation Loan. It is a smart way to manage your finances.