All you need to know about Debt Consolidation

  • June 29, 2021
In recent years, it's become easier than ever to obtain loans, whether you're seeking to buy a new home or pay for unforeseen expenses. The government too has encouraged citizens to take loans. It has reduced interest rates, and the continued move towards digitization has cut down on red tape considerably. Quick loans are now obtainable at the tap of a finger, literally.

This ease of obtaining loans has encouraged higher aspirations among people. It's made them gun for greater glory. Not surprisingly, this has raised consumption across the board. Given the ease with which loans can be obtained now compared to the olden days, people get sucked into perilous debt traps. 

As a consequence, debts have piled up for many individuals and put them in highly stressful situations. They end up having to pay off multiple loans and settle stacked-up credit card debts while also trying to set money aside for household expenses.

This is where debt consolidation can be of some assistance. Put simply, it allows you to merge your loans. When you take a personal loan for debt consolidation, all your debts get merged into a single amount which can be paid off on a monthly basis. It essentially settles all your debts and leaves you with one loan to pay off, which you can do via a single EMI (Estimated Monthly Installment) if you wish.

Is debt consolidation a one-shot clearance of all debts?

It's worth noting that your debt obligation is not reduced by way of debt consolidation. Instead of getting rid of all your debts, it merely makes the process of paying them off considerably easier.

Remember that even after you're done paying off your pre-existing debts, there's still the task of repaying the consolidation loan itself. This will require you to keep making EMI payments for the duration of your tenure. The ultimate goal is to make you entirely free of all debt.

Debt consolidation requires you to sign a debt agreement

Like any debt agreement, debt consolidation loans too are contract agreements between the borrower and the lender of a financial entity. As such, the terms outlined by the contract dictate your eligibility to make further borrowings, rendering the consolidation loan ineligible for all but the repayment of your outstanding debts.   Additionally, it also commits you toward paying the debts within the passage of a fixed period of time, and delays could lead to fines.

Affordability

Thankfully, despite the seemingly binding nature of debt consolidation, it is deemed an attractive proposition. That's because of the higher overall flexibility that they offer as well as very marginal interest rates. Aside from that, they also offer the flexibility of letting you pay only the interest as EMI.

Debt consolidation not a substitute for unhealthy financial behaviour

As we've discussed, a debt consolidation loan is merely a way of streamlining your debts and not an easier way out. So when your spending habits put you in such dire straits that you need to consider a debt consolidation loan, it's a good time to step back and reassess your financial habits. Perhaps have a look at 10 money management tips you can take to the bank.

At mPokket, we firmly believe loans should be available at the drop of a hat, when you need it most, particularly students and young professionals whose dreams and aspirations are at a budding stage.

However, we also believe in fostering a sense of responsibility when it comes to paying off debts. To that end, we offer flexible repayment options that let you decide your own repayment schedule. We also offer incentives for timely settling of dues, such as raised credit limits and mCoins. This applies to both student loans as well as loans and salary advances for young professionals. So don't wait, download the app now and take an instant loan after a quick, hassle-free and paperless process. 
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