3 Reasons to Consolidate Your Unsecured Debt Using a Personal Loan

Loans, EMI, and repayment are essential components of our day-to-day lives. To suit our growing needs, we may end up with several big and small loans. Repaying each loan individually is an overwhelming job. 

If you miss out on even a single due date, your interest rate will increase and your credit score can fall. Therefore, you will want to make it as easy as possible to ensure regular repayments. This is easier with a single personal loan. 

So, what is this unsecured debt consolidation with personal loans? Keep reading to know everything about it. 

What Is Unsecured Debt Consolidation?

Unsecured debts are those that do not require any collateral from applicants to provide funds. Personal loans are a type of unsecured loan or debt. 

When you have numerous unsecured loans, paying each one individually can become a tedious job. Moreover, many types of unsecured loans levy very high-interest charges. This can lead to mismanagement of finances and missing loan due dates. To avoid such chaotic situations many borrowers opt for debt consolidation. 

Under this process, you use one loan to pay off all your outstanding debts together. To opt for an unsecured debt consolidation process, you may opt for a new personal loan. You can also choose the loan balance transfer facility and avail better repayment terms from the new lender.

3 Prime Reasons to Consolidate Unsecured Debt Using Personal Loan

Given below are three reasons why you should consider consolidating your unsecured debts using a personal loan.

1. To Enjoy Competitive Interest Rates

Borrowers with high credit scores can opt for unsecured debt consolidation to repay the remaining amount at low-interest rates. This makes opting for an online personal loan a much more viable option. 

2. Easier Loan Repayment Facility

By opting for debt consolidation, you make it much easier to keep track of repayment dates as you have a single loan. Moreover, many lenders provide flexible repayment tenures that let you choose an EMI amount you can easily afford to pay. You also get the option of loan prepayment and foreclosure, which lets you become debt-free faster.

3. Boost Your Credit Score

Multiple debts can lead to an undisciplined approach to managing these loans. Following this, you may find it difficult to repay your EMIs on time and thus miss out the due date. 

Missing out on EMI payments and defaults can significantly reduce your credit score, which would prevent you from taking any more loans. To avoid such a scenario, you can opt for consolidation of your unsecured debt using a personal loan. This comes with a fixed repayment schedule and lower charges compared to other unsecured debts. 

This eases your repayment process and you will not miss a due date. This will boost your credit score by the time you are debt free. 

Other Reasons to Opt for Personal Loan to Consolidate Unsecured Debt

Here are a few other reasons that highlight the benefits of using personal loans for debt consolidation:

• No Collateral Needed

As personal loans are unsecured loans, you do not need to pledge any collateral to consolidate your debts. Also, you can opt for a personal loan to finance any urgent purpose unlike a home loan or education loan. Therefore, you can easily opt for a personal loan to consolidate all your outstanding debt. 

• Quick Documentation

Both salaried and self-employed individuals can opt for personal loans with minimal documentation. They need to provide a few documents physically or as scanned copies to banks or NBFCs while applying for a personal loan. These documents act as proof of an individual’s identity, address, source of income, and credibility.

Banks or NBFCs usually require you to submit your PAN card and proof of ID and address, which can be your Aadhaar card, voter ID card, driving licence, or passport. In addition, you need to submit income proof, such as bank statements or salary slips.

• Instant Approval and Disbursal of Loan

Unlike other loans, you only need to fulfil basic eligibility criteria to get your loan amount approved by banks and NBFCs. Nowadays, many banks and NBFCs instantly approve and disburse the personal loan amount to your bank account after the verification of your documents. 

Therefore, with a personal loan, you can quickly start the debt consolidation process as soon as you receive your loan amount.  

• Flexible Loan Tenure of Personal Loan

Most personal loans come with flexible loan tenures. Therefore, you can borrow funds and use them as per your requirements. You can also choose an EMI amount as small as you want for your convenience. Thus, a personal loan is the best option for consolidating all your unsecured debts and repaying at your convenience. 

Things to Keep in Mind before Opting for a Personal Loan

Here are a few points you must take into consideration for opting for a personal loan. 

• Before opting for a personal loan, make sure your outstanding loan amount does not exceed a minimum percentage of your credit limit as prescribed by the respective lender. 
• Maintain a proportionate credit mix between secured and unsecured loans. This will portray to your potential lenders that you can manage all types of loans. 
• Avoid frequently applying for new loans. Every time you apply for a new loan, your lender conducts a hard inquiry that drops your credit score. This can also depict that you are always in need of new loans and lenders can label you as a risky investment. 
• To consolidate your unsecured debts through personal loans, you must have a healthy CIBIL score. Having a higher credit score than the time you opted for previous debts will let you get lower interest rates on them.

Final Words

Consolidation of unsecured debts allows you to re-organize your scattered outstanding debts into a single one. By getting a personal loan to repay this consolidated debt, you can end up debt-free by repaying your entire loan amount by the end of your tenure. To conclude, remember to have a healthy credit score to get your loan application instantly approved. 

Frequently Asked Questions 

1. Are debt settlement and debt consolidation the same?

No, debt settlement and debt consolidation are quite different from one another. Debt settlement is the process by which you can get creditors to close your loan by accepting a loss. In contrast, debt consolidation is merging all your outstanding debts into one single personal loan. 

2. What are the main advantages of debt consolidation?

The prime advantage of debt consolidation is that it makes repayment of debts easier as you have to pay only one loan. Furthermore, you can pay off this loan at a lower interest rate as lenders offer better repayment terms to entice new customers.

3. What is a personal loan balance transfer?

A personal loan balance transfer is a process to transfer your outstanding loan amount from an existing lender to a new one. By choosing a personal balance transfer, you can repay the remaining debt with a lower interest rate than from your previous lender. 

4. How does a good debt consolidation work?

You can consolidate your outstanding unsecured debts by applying for a personal loan. A good debt consolidation will either spread the loan throughout the tenure or reduce its interest rate. By this, you can complete your debt repayment through small EMI through just one loan.