Debt can significantly impact your financials. It will also restrict you from saving. Fortunately, there are several ways to reduce bad debts. One such way is a debt consolidation loan. It is considered particularly a wise option. Opting for this will allow you to focus on managing a single loan. You will not be juggling between multiple debts. You will pay your existing debts with a single loan. This way, you can simplify your financial responsibility. This approach is easier to handle compared to other types of loans with multiple rates and interest rates.
The main advantage of Loan Consolidation is that it can lessen interest rates. It will help save over time. However, I would advise you to know the interest rates before applying for consolidation loans. You also need to consider other aspects like finance costs and early payment fees. Knowing these factors will ensure that you will have a beneficial consolidation. Overall, it will help streamline your finances. It will also reduce your stress. This way, you will have more financial stability.
How does debt consolidation work?
From my understanding, Loan Consolidation usually have fixed rates. This means the interest rate on the debt will remain constant throughout the agreement. This would enable you to manage your payments better. This can also benefit individuals with multiple lines of credit and different interest rates.
Sometimes, people might confuse debt consolidation with bankruptcy. However, these two approaches are significantly different. The consolidation approach will reduce debt by making it more manageable. Meanwhile, bankruptcy will eliminate the debt. It proves that the borrower can no longer repay the loan.
In case of debt settlement, the borrower will negotiate with their creditors. They will negotiate to pay less than they currently owe. This means the entire agreement will be changed into a new one. Here, the borrower will promise to pay a smaller amount. For this reason, it is also referred to as debt relief or adjustment.
On the other hand, bankruptcy is a legal way by which a borrower will ask for some financial obligations. With this approach, the borrower will get a new start on their finances.
Debt settlement and bankruptcy will have negative impacts on your credit score scores. This is not the way Loan Consolidation works. However, you have to make payments responsibly. It will have a negative impact temporarily.
Debt Swap Scheme
This scheme is specifically for the farmers. Now, let us look at this.
Objective
Farmers might get burdened by bad debt from non-institutional sources. This option will help reduce the distress they face.
Eligibility
[a] Farmers with Union Green Card credit facility for crop loans are eligible.
[b] Farmers whose accounts are regular in all aspects.
[c] Farmer borrowers who had their loans restructured under the 2004 Finance Minister’s relief package or the 2006 Prime Minister’s package for debt-stressed farmers.
[d] Farmers’ loans restructured under the RBI guidelines for areas hit by natural calamities can be eligible.
Security
The bank can claim over the borrower’s assets created through UGC.
Mortgage of properties and/or third-party guarantee according to the bank guidelines.
Here, I have uncovered the benefits and features of a debt consolidation loan:
[1] Quick approval
From my experience, debt consolidation loan applications are processed within a few hours. After applying, the lender will verify the applicant’s credit history. They will look at your credit score. If the results are satisfactory, you might receive the loan within a few hours.
[2] Flexibility in payment
Debt consolidation will allow you to choose your repayment terms. Additionally, you will also choose the loan amount you need to clear your debts. It is as simple as this.
[3] No collateral
A debt consolidation loan does not require collateral. Meanwhile, other loans require security.
Final thought
Loan Consolidation is a strategic way of managing multiple debts. It combines multiple ones into a single manageable loan. This will simplify your life. It can also lower interest rates. This way, you can eliminate the stress.
