How a Personal Loan for Debt Consolidation Can Save You Money?

A personal loan for debt consolidation is a smart way to manage your debts better. It lets you combine multiple loans or credit card bills into one single loan. This can help lower your interest rate, reduce monthly payments, and make your finances easier. 

With one fixed EMI every month, you stay organised and avoid missing payments. This blog explains how it helps save money and improve financial health.

1. Lower Interest Rates

A personal loan for debt consolidation can help you save money by lowering your interest rates. This means you pay less in interest over time, making it easier to manage your finances.

Rajesh's Example

Let's see how Rajesh can benefit from a personal loan:

By consolidating his ₹50,000 credit card debt into a personal loan at 10.99% interest, Rajesh saves ₹18,201 in interest and reduces his monthly EMI by ₹900. This makes his debt easier to manage and helps him become debt-free faster.

If you are in a similar situation, consider a personal loan for debt consolidation to lower your interest rates and save money.

2. Simplified Monthly Payments

A personal loan for debt consolidation can make your monthly payments easier to manage. Instead of paying multiple loans with different due dates and amounts, you combine them into one loan with a single monthly payment. This helps you stay organised and reduces the chance of missing payments.

Example: Umesh had three loans:

He took a personal loan of ₹1,00,000 at 11% interest to consolidate his debts.

Now, Umesh pays only ₹2,200 per month instead of ₹4,800. This single payment is easier to track and reduces his financial stress.

3. Fixed Repayment Schedule

A personal loan with a fixed repayment schedule helps you plan your finances better. You pay the same amount every month, so there are no surprises. This makes it easier to manage your budget and avoid missing payments.

Read More – Debt Consolidation Vs Balance Transfer – Which One Saves You More?
 

Example: Yogesh took a personal loan of ₹1,00,000 at 11% interest for 5 years (60 months). His monthly EMI is ₹2,174. This amount stays the same every month.

With this fixed schedule, Yogesh knows exactly how much to pay each month. This helps him plan his expenses and avoid financial stress.

4. Potential Credit Score Improvement

Using a personal loan to consolidate debt can help improve your credit score over time. When you pay off high-interest debts like credit cards with a personal loan, you reduce your credit utilisation ratio and establish a consistent payment history – both key factors in credit scoring.

Example: Shailesh had three credit cards with high balances:

He took a personal loan of ₹90,000 at 11% interest to pay off these cards.

After consolidation:

Now, Shailesh's credit utilisation is 0%, and he makes one fixed monthly payment on his personal loan. This consistent payment history and lower utilisation can lead to a higher credit score over time.

Also Read  - Why Debt Consolidation is a Game-Changer in Managing EMIs
 

If you have multiple debts, consolidating them with a personal loan can simplify your payments and help improve your credit score.

5. Faster Debt Repayment

A personal loan for debt consolidation can help you pay off your debts faster. By combining multiple high-interest debts into one loan with a lower interest rate, more of your monthly payment goes toward reducing the principal balance rather than just covering interest. This strategy can shorten your repayment period and save you money in the long run.

Nitin has the following debts:

Nitin consolidates these debts into a personal loan of ₹1,20,000 at 12% interest for 24 months.

By consolidating, Nitin maintains the same monthly EMI of ₹6,000 but now has a single payment to manage. This simplifies his finances and helps him stay on track to become debt-free in 24 months.

Conclusion

A personal loan for debt consolidation can save you money by lowering interest rates, simplifying payments, and fixing a repayment schedule. It helps pay off debt faster and may improve your credit score. 

By combining multiple loans into one, you reduce stress and manage your finances better. If you have high-interest debts, consider a personal loan to save money and become debt-free sooner. It is a smart way to take control of your finances.

FAQs

1. How does a personal loan help in debt consolidation?

It combines multiple debts into one loan with a lower interest rate, saving money and simplifying payments.

2. Will debt consolidation improve my credit score?

Yes, it can improve your score by lowering credit utilisation and ensuring timely payments.

3. Is the EMI fixed in a debt consolidation loan?

Yes, you pay a fixed EMI every month, making budgeting easier.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?