The Secret to Lowering EMIs with Debt Consolidation – Explained

Every month, Shreya faced a continuous wave of "EMI ka tsunami" as a 30-year-old IT professional. Her salary had multiple loans, which kept diminishing her cash flow.

• ₹3,00,000 personal loan at 14% interest
• ₹1,50,000 credit card balance at 24% interest
• ₹2,00,000 car loan at 12% interest

Maintaining three separate EMIs worth ₹25,000 monthly payments proved extremely difficult to handle. No matter how carefully she planned her money, her empty bank account was always followed by monthly EMI payments.

Her friend introduced Shreya to debt consolidation services, which simplify the process of paying back loans. Shreya took action immediately:

• She used a ₹6,50,000 debt consolidation loan with 11% interest to pay off the entire collection of her high-interest loans simultaneously.
  
  
• By obtaining a loan of ₹6,50,000, she lowered her monthly EMI payments to ₹15,000 while saving ₹10,000 per month.
• She got rid of her stress about managing multiple payment schedules and avoiding late penalty fees.
  
  
• Her credit score received an improvement because she paid all bills on schedule.
  
  

She lives financially stress-free since debt consolidation has given her “Jeb bhi khush, mann bhi shant” satisfaction.

Getting help from debt consolidation allows you to transform your financial situation if you have different loans, as debt consolidation can help you solve this problem. Through this article, we will understand how debt consolidation operates as well as learn methods to manage your money better so you can lower your financial responsibilities.

Debt Consolidation: “Yeh EMI Ka The End Hai!”

Debt consolidation refers to taking out a new loan or credit card to pay off other existing loans or credit cards. By combining multiple debts into a single, larger loan, you may also be able to obtain more favourable payoff terms, such as a lower interest rate, lower monthly payments, or both.

“Lagaan” of High Interest? Here’s How To Break Free!

Tired of paying high interest on loans? Follow these effective strategies to bring down your rates and make significant savings.

Improve Your Credit Score

A higher credit score = lower interest rates! Boost it by:

I.Paying EMIs on time (Avoid late fees!)

II.Keeping credit utilization below 30%

III.Review and update your credit reports to fix any wrong information

IV.A credit score above 750 lets you secure an 11% loan consolidation rate instead of 16%.

• Within six months, Shreya’s score increased from 680 to 760, and she secured an 11% loan rate rather than 16%, which gave her a savings of ₹100,000.

Compare Lenders for the Best Rates

Each lender company provides unique borrowing costs to their clients. Choose wisely!

• You will pay less interest over 5 years when you select a 10% loan instead of a 16% one for ₹5,00,000.

Opt for a Secured Loan

Banks and NBFCs grant secured loans that come with interest rates as low as 8% to 10%, but unsecured loans have rates ranging from 14% to 24%.

• Shreya received a 9% loan using her ₹2,00,000 FD as security and decreased the total interest payment by 1,20,000.

Choose a Shorter Tenure

A loan taken over several years leads to paying more interest payments in total.

Negotiate with Your Lender

I.Ask for a rate reduction if you have a credit score of 750+.

II.Many companies provide reduced interest rates to loyal clients, so look for these discounts before borrowing again.

• Shreya maintained a 7-year banking relationship through prompt payment of her EMI installments. She directly called her bank to discuss the deal and secured a better loan interest rate from 14% to 11.5%, which resulted in saving her ₹60,000. Always ask—negotiation works!

Consider a Balance Transfer Loan

When your bank refuses to lower rates, you should transfer your loan to another lender who offers better rates, but be prepared for any transfer costs.

• The 14% interest rate on Shreya's loan appeared too expensive to her. The second bank agreed to give her a transfer loan at 10.5% interest. Despite the processing fee she needed to pay the bank, she still lowered her 4-year interest burden by ₹80,000.

Avoid Debt Traps

I.Use new loans only when you need them.

II.Put your EMI savings toward early loan payments to cut down on interest payments.

“Jugaad” That Actually Works: Proven Ways to Consolidate Debt

The following chart shows how effective debt consolidation strategies work along with their interest rates, ideal uses, and average money savings.

Crucial Factors Before You Consolidate: “Pehle Soch, Phir Loan!”

Debt consolidation helps manage payments and lowers borrowing expenses, yet you need to look at essential elements before moving forward. Here’s what you should consider:

Credit Score: Your borrowing ability increases when your credit score exceeds 700. Enhance your credit score first before applying for loans.

Interest Rate: Make sure that your new loan offers a lower rate than your existing debts. Always compare lenders and check for hidden charges.

Total Loan Cost: The longer loan term decreases EMI amounts but raises the amount you pay in total interest. Use a loan calculator to check affordability.

Secured vs. Unsecured Loan: You can get lower rates on secured loans, such as home or gold loans, but must offer property security. Choose this option only when you want to use an owned asset as security.

Repayment Tenure: A shorter tenure reduces total interest but increases EMI amounts. Decide on your loan term to save money without overextending your budget.

Balance Transfer Fees: Loan transfer services charged by banks usually cost 2% to 3% of the total loan amount. The annual fee expenses must remain lower than the amount saved from reducing the interest rate.

Lender reputation: Always check reviews, loan terms, and hidden costs before choosing a lender to avoid poor service.

Prepayment & Foreclosure Charges: Some lenders charge fees for early closure. Opt for loans with low or zero prepayment charges to save on interest.

Will Debt Consolidation Be A “Hero” Or “Villain” For Your Credit Score?

Consolidating debts affects your credit score depending on how you handle the procedure. The table below highlights both the positive and negative effects.

Debt Consolidation Myths vs. Reality: “Jo Dikhta Hai, Woh Humesha Sach Nahi Hota!”

Debt consolidation provides useful financial help, but people often believe wrong information about it. Let’s expose some common misconceptions.

Myth 1: Debt Consolidation Eliminates Debt

Reality: By uniting several loans, debt consolidation does not make debts vanish but creates one simpler and more affordable credit option. You still need to repay the full amount.

Myth 2: It Lowers the Total Debt Amount

Reality: When you lower your monthly payments through debt consolidation, the total sum you pay becomes higher because you need to pay interest and be in debt longer.

Myth 3: Only People with Bad Credit Need Debt Consolidation

Reality: Individuals with solid credit scores also choose consolidation plans because they receive better interest rates and find their bills easier to handle.

Myth 4: Debt consolidation does not damage your credit score

Reality: While a new loan application may cause a temporary dip, timely repayments improve your credit score over time.

Myth 5: You Can Merge All Types of Secured Debts on One Loan

Reality: A person can combine secured debts such as home and car loans when a lender allows it.

Myth 6: Once Consolidated, You’re Debt-Free

Reality: Consolidation only restructures debt. Your financial crisis will grow worse if you keep exhausting your credit.

Myth 7: Having consolidation as your only debt solution does not work well for everyone

Reality: The new loan benefits you only if its charges stay low and the repayment period stays short. Always compare costs before deciding.

Conclusion

Shreya’s journey from financial stress to stability proves that debt consolidation is a game-changer when used wisely. By lowering her EMI burden, securing a better interest rate, and streamlining her payments, she transformed her financial outlook. However, the key to success lies in choosing the right loan, avoiding hidden costs, and maintaining disciplined repayments.

If you’re drowning in multiple EMIs, take a strategic approach like Shreya—compare lenders, negotiate better terms, and prioritise early repayments. Debt consolidation isn’t just about combining loans; it’s about regaining financial control and ensuring a debt-free future.

FAQs

• Will debt consolidation lower my credit rating?

A new loan inquiry will temporarily decrease your credit score when you submit your loan application. Repeated good debt payments help to improve your credit score.

• What specific debts can be combined into a single payment?

You can put together different types of unsecured debt, such as credit cards, personal loans, medical costs, payday loans, and others. Some banks let you merge secured loans, such as home equity loans, with specific loan terms.

• Is debt consolidation the same as debt settlement?

No, debt consolidation combines multiple debts into one with a lower interest rate, whereas debt settlement involves negotiating with creditors to pay less than what you owe, which can harm your credit score.

• What steps should a person with low credit take to merge their debts?

Your borrowing rates probably will become more expensive. You should enhance your credit score to receive favourable loan conditions when you apply.

• Does debt consolidation contain unknown charges?

Lenders include additional fees like origination charges, processing fees, and prepayment penalties when they grant loans. Review all loan details first before you commit.

Apply for Loans Fast and Hassle-Free

Apply Now

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?