Is Debt Consolidation the Best Strategy for Clearing Your Credit Card Debt?

Riya, a 28-year-old UX designer from Hyderabad, thought her finances were under control. 

Earning ₹55,000 a month, she didn’t mind spending ₹3,000 on weekend food or ₹2,500 on online shopping. The EMIs of her laptop and phone were manageable as well.

However, within 8 months, her credit card debt grew to ₹1,40,000. She diligently paid ₹5,000 each month, expecting these payments would help reduce her debt; however, that ₹5,000 was only the minimum due, which was mostly going toward interest, and much of the debt remained.

"Itna zyada interest?" She complained as she looked over her credit card statement. Even though she was paying every month, the amount on the card barely went down. 

She felt trapped and frustrated and didn't know how to escape the rut.

That is when she learnt about debt consolidation, which combines several outstanding debts into a new loan with a single monthly payment and a reduced interest rate to help you lower your financial stress.

Now that we’ve seen Riya’s story, let’s dive into the reality of credit card debt in India and how it affects so many people.

First up:

Swipe Now, Cry Later: The Real Face of Credit Card Debt in India

Riya never thought much about her credit card. It was another convenient tool—purchasing clothes, ordering dinner, and booking a flight without hesitation. But when she saw her most recent statement, reality hit hard.

She owed ₹1,40,000 on credit cards, and the bank was charging her ₹4,200 in interest every month. Although she was paying ₹5,000 a month—the minimum—the debt wasn't decreasing much.

Here's why:

• Total debt: ₹1,40,000
• Monthly installment: ₹5,000
• Monthly interest: ₹4,200

So, having paid that ₹5,000, only ₹800 went towards lowering the principal. The rest just covered the interest. That’s why the debt felt like it wasn’t going anywhere.

The catch? The interest was so steep that, regardless of how much Riya paid, most of her money was being used to pay interest, not the actual debt.

This is the bitter truth of credit card debt in India. So many are trapped in this same cycle, paying minimum dues, watching the interest accrue, and making little progress.

EMI Loop = Timepass or Trap?

According to TransUnion CIBIL data, credit card defaults in India increased to 1.8% as of June 2024, up from 1.7% six months prior and 1.6% in March 2023. This trend indicates growing financial stress among borrowers.

Also, the Supreme Court of India has ruled that banks can legally charge interest rates exceeding 30% on credit card dues.

For example, when Riya bought a washing machine for ₹48,000 on her credit card, she chose a 24-month EMI option, assuming that paying ₹2,000 every month would be easy. But after six months, she realised that her balance had gone down a bit, and her credit line was still tight.  

Let us calculate:

Her ₹48,000 washing machine cost her nearly ₹70,000.

Credit card EMIs may seem convenient, but the interest accumulates quietly, keeping users in a loop. It's not just about paying slowly—it's about paying much more than expected.

So, is the EMI loop truly helping you, or is it just keeping you stuck in a never-ending financial saga?

Debt Consolidation: One Loan to Rule Them All?

Riya was finding it tough to manage her bills.

• ₹20,000 due on one credit card
• ₹12,000 on another
• ₹8,000 from a BNPL purchase
• And a ₹15,000 personal loan EMI due next week

Together, that's ₹55,000 spread across four lenders with interest rates of 24% to 36%.

She was paying multiple minimum dues, never touching the actual principal, and the stress was building.

So, she explored debt consolidation, where you take a single, usually lower-interest personal loan and use it to pay off all the high-interest, scattered debts.

Here's how Riya’s before vs after appeared:

Looks good, right? It can be—but there’s a catch:

• You still owe the same amount—debt consolidation isn’t loan forgiveness.
• You must avoid racking up fresh debt—clearing the old debt won’t help if new swipe habits begin again.
• Your credit score and loan eligibility will affect the interest rate you get on the consolidation loan.

Note: Debt consolidation works best for people with good credit and consistent income. By using it properly, you can restore balance and get your finances back on track.

So, if you're struggling with multiple debts and just making slight progress, consolidation could be your reset button—not a Band-Aid, but a practical move toward financial recovery.

One Loan, Less Tension: How Debt Consolidation Works Like a Charm

A few months after Riya decided to consolidate her ₹55,000 debt, she at last had peace of mind. No more checking her bank app every few minutes or cross-checking due dates—everything was finally transparent.

Here's how Riya changed:

• Less interest = greater savings: Instead of paying sky-high interest rates on her credit cards (30%), she shifted to a single loan with a 14% interest rate, saving her a lot in the long run.
  
  
• One EMI = no juggling: Now, Riya only had to worry about one payment, not five. One less thing on her plate.
  
  
• Credit score improvement: On-time payments improved her credit score.
  
  
• Fixed tenure = clear debt closure: No more continuous repayment loops. She knew exactly when her ₹55,000 would be gone.

As Shah Rukh Khan once said, "Picture abhi baaki hai, mere dost." Debt consolidation does not end your story—it 

lets you rewrite it.

"Loan Lena Hai, Toh Smart Bano" — How to Apply for a Debt Consolidation Loan

Obtaining a debt consolidation loan is not rocket science, but it does require some preparation. This is what Riya did correctly:

Riya’s Foolproof Loan Checklist

Check your credit score

Riya began by verifying her credit score—turns out, it was 768. A credit score of over 750 provided her with improved loan options.

Compare loan choices

She shopped around various lenders, targeting those with low interest rates, no pre-closure fees, and low processing charges.

Choose the right lender

Riya selected a lender that gave her 13.5% interest without a pre-closure charge. She wasn't tricked by the glitzy deals with hidden charges in small print.

Apply online with minimal documents

The application was easy—KYC, recent salary slips, and a few clicks. She was pre-approved within hours.

Pay off debts—and cut the plastic

As soon as the loan was credited to her account, Riya settled her ₹55,000 credit card balance. She even closed two of her cards to prevent temptation in the future.

Why Your Credit Score Counts More Than You Realise

When you borrow money, your credit score is the first thing a lender looks at. It serves to determine if you're a good risk as a borrower and what interest rate to charge you.

What Is a Credit Score?

In India, your credit score is a three-digit figure (300 to 900) given by CIBIL (Credit Information Bureau India Limited) based on your spending habits. It's your financial report card!

The range of credit scores in India extends from 300 to 900, and this score decreases substantially when you fail to meet payment deadlines.

How Debt Consolidation Impacts Your Credit Score

Note: A good credit rating doesn't happen overnight. It requires consistency, self-discipline, and awareness. Timely payments after debt consolidation will strengthen and rebuild your credit history in the long run.

EMI Tak Toh Theek Tha... Par Ye Extra Charges Kya Hai?

Before you go ahead with a debt consolidation loan, it is important to know not just the EMI but also all the things that go around it. Certain fees might not be immediately apparent, but they will creep into your savings silently.

Common Fees to Be Aware of:

For example, when Riya availed of a ₹2,00,000 consolidation loan:

• She paid a processing fee of ₹4,000 (2%)
• Prepayment was possible after 6 months with a 3% fee
• One of the late EMIs cost her a penalty of ₹700

Snowball, Avalanche, or Consolidation? Picking Your Debt Payoff Match

There isn't a single debt-freedom plan for all. The most suitable one relies on your financial status, temperament, and mode of handling payments.

Here’s a quick breakdown of the three most popular ways to tackle debt:

For example, Riya was juggling with a few debts:

• ₹20,000 in one credit card with 42% interest a year
• ₹50,000 in another at 36%
• ₹10,000 in a third at 48%
• ₹15,000 on a Buy Now, Pay Later loan at 30%

She considered the avalanche approach—prioritising the debt with the highest interest. But with so many different amounts, due dates, and accounts, it became too stressful to handle.

She opted for debt consolidation instead. By borrowing a single personal loan at 14% interest, she cleared all her dues at once.

Now, rather than handling four high-interest payments, she has one EMI that's simpler to keep tabs on and much more cost-saving in the long run.

Debt-Free Finale: Avoiding the Debt Trap Forever

As soon as you're debt-free, the hard work starts—the effort to avoid debt. It's not about paying dues but developing habits that keep you in good health, financially, for the rest of your life. Here's how you can remain on your toes:

Habits that Keep You Debt-Free:

Budget wisely: Invest in apps like Walnut or YNAB and track your spending to adhere to a budget.

For example, Riya allocated a budget of ₹30,000 in YNAB each month, recording every transaction from food to leisure. It helped her maintain track and stay away from petty expenses.

Use credit cards responsibly: For purchases that are planned and not for impulse purchases!

For example, having paid off all her debt, Riya used her credit card only for monthly grocery shopping (₹5,000) and major items such as electronics (₹15,000), always paying the total bill.

Always pay in full: Don't just fall into the trap of paying the minimum due. Pay the entire amount to avoid any more interest.

For instance, instead of paying the minimum due of ₹1,000 on her ₹20,000 balance, Riya started paying the entire ₹20,000 every month, keeping her credit card usage interest-free.

Create an emergency fund: Set aside 3-6 months' worth of costs. It will serve as a buffer during difficult times and prevent you from resorting to credit.

For example, Riya accumulated ₹25,000 within 6 months as her emergency fund, sufficient to cover her rent and food in case of an emergency.

Review your finances every now and then: Step away every 3 months to review your finances and make changes where needed.

For example, at every 3-month interval, Riya would sit with her bank statements and change her expenditure, reduce going out and save the same, and invest elsewhere.

Conclusion

Consolidation can save your life if you're overloaded with high-interest debt. It puts them all into a single loan that has a reduced interest rate, something easier to manage. It's not, however, a band-aid.

As our story about Riya shows, you have to address your expenditure habits and comply with the course of action. If you do it correctly, debt consolidation can be your breath of fresh air—just keep yourself in check and don't fall back into bad habits.

FAQs

• Is debt consolidation helpful for credit card debt in India?

Yes, if done intelligently. It reduces interest rates, simplifies repayment, and increases credit scores over time.

• Will debt consolidation affect my credit score?

Your credit score may drop a bit at first because of a new loan. But with timely payments, it will rise in the long term.

• Which banks in India provide debt consolidation loans?

HDFC, ICICI, Axis Bank, Bajaj Finserv, and online fintech platforms such as PaySense and MoneyTap provide them.

• Can I consolidate debt with a bad credit rating?

It's challenging. Consider using a secured loan, such as a gold loan, or ask for a co-signer to improve your chances.

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About the Author

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?