How to Combine Personal Loans and Credit Cards Into One EMI – Simplify Repayments

Do you have too many loans and credit card bills to remember? Managing many payments every month can be confusing and stressful.

Take Anil, a 32-year-old IT professional from Bengaluru. He had a personal loan of ₹3,00,000 with a monthly EMI of ₹9,500. Along with that, he also had two credit cards with outstanding amounts of ₹1,50,000 and ₹1,00,000. 

These cards charged him over 24% interest every year. Trying to keep up with three different payments was becoming too much for him.

Anil's case is not rare. By June 2024, India's total credit card debt rose to nearly ₹₹2,70,000 crore, a big jump from ₹2,00,000 crore just a year earlier. This shows that more people are using credit and struggling to keep up with multiple EMIs.

What Is EMI Consolidation?

EMI consolidation, commonly known as debt consolidation, involves combining multiple debts, such as personal loans and credit card balances, into a single loan. This process results in one consolidated Equated Monthly Installment (EMI), simplifying repayment. 

By merging various debts into a single loan, you can potentially secure a lower interest rate, reduce the total EMI amount, and have a clear repayment schedule. 

Read More – Minimizing EMIs Count Can Improve Your Credit Score? Find Out Now!

This approach is particularly beneficial for individuals managing multiple high-interest debts, as it streamlines finances and can lead to huge savings over time.

How It Helps in Managing Finances Better?

Managing multiple debts can be challenging and stressful. EMI consolidation offers a structured approach to regain control over your financial obligations.​

·         Simplifies Repayments: Combining various debts into a single loan means you only have one EMI to remember, reducing the chances of missing payments.​

·         Potentially Lowers Interest Rates: Consolidation loans often come with lower interest rates compared to credit cards, leading to reduced overall interest payments.​

·         Improves Credit Score: Timely repayment of a consolidated loan can positively impact your credit score over time.​

·         Reduces Financial Stress: Managing a single loan is less stressful than juggling multiple debts with varying interest rates and due dates.​

·         Offers Clear Repayment Timeline: With a consolidated loan, you have a fixed tenure, providing a clear end date for your debt obligations.​

Why Combine Personal Loans and Credit Cards Into One EMI?

Managing multiple debts can be challenging, especially when dealing with different interest rates, due dates, and lenders. Combining personal loans and credit card debts into a single EMI through debt consolidation offers several advantages that can improve financial health.​

Ease of Tracking a Single Due Date

Juggling multiple due dates increases the risk of missing payments, leading to late fees and negatively impacting your credit score. By consolidating your debts, you streamline your repayments into a single EMI with one due date. 

For instance, if you had three debts with due dates on the 5th, 15th, and 25th of each month, consolidating them means you only need to remember one date, reducing the chances of oversight and simplifying your financial management.​

Lower Interest Rate Compared to Credit Cards

Credit cards often carry high-interest rates, sometimes exceeding 24% per annum. In contrast, personal loans for debt consolidation can offer lower interest rates. 

For example, Poonawalla Fincorp provides debt consolidation loans with interest rates starting at 9.99% per annum. By transferring your credit card debt to a lower-interest personal loan, you can significantly reduce the amount paid in interest over time

Here's a comparison of interest rates:

Options to Combine Debts Into One EMI

Debt Consolidation Loan

A Debt Consolidation Loan involves taking out a new personal loan to pay off multiple existing debts. This strategy combines various debts into a single loan with a potentially lower interest rate and a unified repayment schedule. 

For instance, IDFC FIRST Bank offers debt consolidation loans up to ₹10,00,000 with interest rates starting at 10.99% per annum. By consolidating debts, you can simplify your finances and potentially reduce the overall interest burden.​

Balance Transfer Personal Loan

A Balance Transfer Personal Loan allows you to transfer existing high-interest loans to a new lender offering a lower interest rate. This can reduce your monthly EMI and the total interest paid over the loan tenure. 

For example, Kotak Mahindra Bank provides personal loans that facilitate debt consolidation by offering quick access to funds, enabling borrowers to merge multiple debts into a single loan. This approach can lead to significant savings and streamlined debt management.​

Top-Up Loan on Existing Personal Loan

If you have an existing personal loan, you might be eligible for a top-up loan. This additional loan amount can be used to pay off other debts, effectively consolidating them into your current loan. 

Top-up loans often come with competitive interest rates and can be a convenient way to manage multiple debts under a single EMI. It's advisable to check with your existing lender about the availability and terms of top-up loans.​

How the Process Works: Step-by-Step

Consolidating your debts into a single EMI involves a systematic approach to ensure effectiveness and financial benefit.​

·         Assess Total Outstanding: Begin by listing all your existing debts, including personal loans, credit card balances, and any other liabilities. 

Note down the outstanding amounts, interest rates, and monthly EMIs for each. This comprehensive overview will help you understand the total debt burden and identify the most expensive debts.​

·         Compare Consolidation Loan Offers: Research various lenders offering debt consolidation options. Compare interest rates, loan tenures, processing fees, and other terms. 

For example, Poonawalla Fincorp offers personal loans for debt consolidation up to ₹50,00,000 with interest rates starting at 9.99% per annum. Evaluating multiple options ensures you select a loan that best suits your financial situation.

·         Check Credit Score Eligibility: Your credit score plays a crucial role in determining your eligibility for a consolidation loan and the interest rate offered. 

Obtain your credit report from credit bureaus and ensure there are no discrepancies. A higher credit score can lead to better loan terms.​

·         Apply for a New Loan and Repay Old Debts: Once you've chosen a suitable consolidation loan, complete the application process by submitting the required documents. 

Upon approval, use the loan amount to pay off all existing debts. This step consolidates multiple debts into a single loan with one EMI.​

Things to Check Before You Consolidate Your Loans

Thinking about combining all your debts into one EMI? Smart move, but only if you do it right. Before you take that step, make sure you know the hidden costs and real impact. 

Debt consolidation can simplify your life, but small fees, longer tenures, or a quick drop in your credit score can quietly hurt your finances. 

Here are five key checks to do before you say yes to any new loan:

1. Pre-closure Charges on Existing Loans

Most personal loans come with pre-closure charges if you repay the amount before the original term ends. These charges can be 2% to 5% of the remaining principal. Let’s say you want to close a loan of ₹1,50,000 early, and your bank charges 3%. 

That’s an extra ₹4,500 added to your cost. If you’re closing more than one loan, the charges can add up quickly. Always check these fees before applying for a new consolidation loan. Ask your lender for a clear breakup before moving forward.

2. Processing Fee on New Loan

All banks and NBFCs charge a processing fee on personal loans. This is usually between 1% to 3% of the loan amount. So, if you’re taking a debt consolidation loan of ₹5,00,000 and the processing fee is 2%, you’ll pay ₹10,000 upfront. 

This amount gets deducted from your loan, so you’ll receive only ₹4,90,000 in hand. Keep this in mind while calculating how much you need to cover all your current debts.

3. Total Cost vs. Benefit Over the Loan Term

Don’t just look at the EMI, calculate the total interest cost over the loan’s lifetime. A lower EMI with a long tenure might mean paying more in total interest. Here's a simple comparison:

So even though the 5-year loan has a smaller EMI, you end up paying ₹23,560 more overall. Choose what fits your budget and helps you save.

4. Impact on Credit Score

When you apply for a new loan, your lender checks your credit score, which can cause a small drop initially. But once your older debts are paid off and you start paying your single EMI on time, your credit score can improve.

Also Read - Budgeting Tips for Managing Multiple EMIs – Smart Loan Planning

Say you had 3 loans with 3 different EMIs and missed one last month. That would hurt your score. After consolidation, with just one EMI and timely payments, your credit behaviour becomes more stable and helps your score rise over time.

5. Is the EMI Really Affordable?

Sometimes the EMI after consolidation looks low, but is it practical for your monthly budget? Let’s say your current EMIs total ₹20,000, and after consolidation, it drops to ₹15,000. 

It feels better, but if the new loan is for 7 years, you're locked in for much longer. Use this table to compare what you’ll really pay:

That’s ₹2,16,000 more just for a lower EMI. Always compare total cost, not just monthly comfort.

Conclusion

Debt consolidation can be a powerful tool to simplify your monthly finances, lower your overall stress, and possibly even save money on interest, if done right. By merging multiple EMIs into one, you reduce the clutter of different due dates, interest rates, and repayment terms. 

But it’s not just about convenience. 

Before deciding, you must compare costs, check lender charges, assess your credit score, and make sure your new EMI fits your monthly budget. When planned smartly, one EMI can give you the peace of mind that multiple debts never could.

FAQs

1. Can I consolidate both personal loans and credit card bills?
Yes, you can combine both using a debt consolidation loan or personal loan with lower interest to make one EMI.

2. Will my credit score drop if I consolidate loans?
Your score may drop slightly at first due to a new inquiry, but regular payments on the new loan can improve it over time.

3. What is the ideal credit score for loan consolidation?
A score above 700 improves your chances of getting better interest rates and loan approval for consolidation.

4. Are there any hidden charges in EMI consolidation?
Yes, check for pre-closure charges, processing fees, and GST, they can increase your total cost.

5. Is it better to choose a longer tenure with a lower EMI?
Only if it fits your budget. But remember, a longer term usually means paying more in total interest. Always compare total repayment.

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LoansJagat Team

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