The Pros and Cons of Using a Personal Loan for Debt Consolidation

Kavita, 27 and a graphic designer from Indore, had reached a dead end. With ₹7,20,000 of debt—₹2,80,000 on credit cards, ₹3,00,000 on an education loan, and ₹1,40,000 on repairing her home—her finances felt like a ticking time bomb.

Every month, ₹20,000 of her salary was swallowed up by various EMIs, and with due dates scattered all over the month, she was barely keeping up.

It wasn't just the figures that frightened her. The pressure was weighing down her performance at work, her health, and her mental space. 

One sleepless night, scrolling through her phone, Kavita saw something that appeared to be the ultimate solution—a personal loan that would consolidate all her loans into one easy EMI.

Was this perhaps the solution she had been searching for? Or just another trap?

Kavita’s story is a familiar one for many people in India today. Rising debt and constant EMIs are a struggle for so many. But why is this happening, and why is it so convenient to end up in the debt trap? 

Let us dig deeper.

EMI Ka Tsunami: Why Indians Are Drowning in Debt

Picture this: making ₹60,000 a month, yet having ₹35,000 of that go towards EMIs. This is not an unusual situation in India. Most households have multiple debts, ranging from credit cards and consumer durable loans to personal loans and car finance.

Consider Kavita, for example. At 27, she was a graphic designer from Indore with ₹7,20,000 in debt.

• ₹2,80,000 on credit cards
• ₹3,00,000 from an education loan
• ₹1,40,000 for home repairs

Every month, ₹20,000 of her salary was spent on paying off these loans, with various due dates spread across the month. The mental and financial strain was only increasing.

Read More – Debt Consolidation or Settlement – What’s Best for You

So what's the solution? For many, it is one word: consolidation.

What is Debt Consolidation? Ek Teer, Do Shikaar!

Debt consolidation combines your several outstanding debts into a new loan with a single monthly payment and a reduced interest rate to help you lower your financial stress.

Instead of managing scattered EMIs with varying due dates and high interest rates, you pay just one EMI every month. 

Simple, right?

For example, Kavita has three loans with different interest rates and repayment dates:

Kavita’s finances before debt consolidation

Three loans, three different interest rates, and three due dates = chaos and mental stress.

Kavita’s finances after debt consolidation

One EMI, one interest rate, and one due date mean Kavita only spends ₹3,500 a month and can now relax!

So yes, ek teer, do shikaar—one clever move—consolidation— enabled Kavita to resolve high EMIs and mental stress.

Personal Loan 101: Hero or Villain?

A personal loan is like that friend who shows up when you're in trouble—quick, no questions asked (well, almost). It’s an unsecured loan, which means you don’t need to mortgage your home or pledge your jewellery to get it.

Personal loans from most banks and NBFCs, such as HDFC Bank, ICICI Bank, and Bajaj Finserv, come with

• Flexible loan repayment tenures of 12 to 60 months
• Interest rates between 10% and 24% per annum
• Fast disbursal, at times within 24 to 48 hours
• Less documentation and online application

Sounds like a hero, right? But let’s not forget—every hero has a flip side.

Is a Personal Loan a Hero or a Secret Villain?

For example, when Kavita decided to consolidate her ₹7,20,000 debt, she chose a personal loan at 13% interest for 5 years. It reduced her monthly EMI burden from ₹20,000 to ₹16,500. The disbursal took just 48 hours, and suddenly, her financial juggling act became manageable.

But—and this is key—had she gone with a loan at 20% interest, the EMI might have stayed high or even increased. So, choosing the right lender and the right rate is crucial.

So, is a personal loan a hero or a villain? Well, it depends on how wisely you use it.

Pros of Personal Loans for Debt Consolidation: The Sunny Side Up

Ravi, a 32-year-old small business owner from Jaipur, was managing multiple debts. Here’s a snapshot of what he was dealing with:

• ₹1,80,000 on a personal loan at 16% p.a.
• ₹1,00,000 for his cafe equipment loan at 22% p.a.
• ₹80,000 on his credit card at 28% p.a.

Every month, Ravi was shelling out ₹18,000 just to pay off these loans, which was stretching his budget. His business was doing okay, but managing these debts was becoming too much. 

The interest rates on his credit card and equipment loan were especially painful, and he had no idea when all of 

this would end.

So, Ravi decided to consolidate all his debts into a single personal loan at 14% p.a. This not only helped him save money on interest but also made his financial life a whole lot simpler.

Here’s how:

Now Ravi has one EMI, lower interest rates, and the comfort of knowing exactly when his debt will be paid off. 

The pressure is off, and he can now focus on growing his business rather than constantly worrying about his finances.

Cons of Personal Loans for Debt Consolidation: Every Coin Has Two Sides

Neha, a 30-year-old HR executive in Bengaluru, thought debt consolidation would be her silver bullet. She had

• ₹3,00,000 left on her education loan at 9.5% p.a.
• ₹1,50,000 on a home renovation loan at 10.5% p.a.
• ₹70,000 on her credit card at 30% p.a.

Worried about managing different EMIs and due dates, Neha decided to take a personal loan of ₹5,20,000 at 14% p.a. to consolidate everything.

But the move didn’t go as planned. Here’s why:

Debt consolidation isn’t a one-size-fits-all solution. 

While it simplifies repayment, it may not always be financially smart, especially if your current loans are already low-interest or if you're not disciplined with spending post-consolidation.

CIBIL Score Impact: Kitne Point Ka Khel Hai Ye?

Your CIBIL score can be affected differently when you take a personal loan for debt consolidation. Here’s a quick guide to help you understand how certain actions can impact your credit score:

For example, Sneha, a 30-year-old schoolteacher from Nagpur, was managing three debts:

• ₹60,000 on a credit card (high interest)
• ₹50,000 on an electronics loan
• ₹90,000 from an app-based lender

To simplify her finances, Sneha took a ₹2,00,000 personal loan at 14% interest to consolidate all her debts into a single EMI.

Initial Impact: Her CIBIL score dropped by 7 points due to the hard enquiry when she applied for the loan.

After 3 months, her score increased by 25 points as she made on-time repayments.

After 6 months, her score had improved by 36 points in total.

When a Personal Loan for Debt Consolidation Makes Sense — And When It Doesn’t

Taking a personal loan to combine multiple debts can be a smart move — but only if it fits your financial situation. For some, it brings relief and control; for others, it may lead to more stress. Before you decide, here’s a simple checklist to help you figure out if this step is right for you.

Should You Go for It? Green Flags vs Red Flags

Alternatives to Personal Loans: Not Every Hero Wears a Cape

A personal loan isn’t the only way to deal with multiple debts. Depending on your financial situation and assets, other options might be cheaper, safer, or better suited for you. Here are a few alternatives worth considering:

Compare Your Options

For example, Rohan from Pune had ₹3,00,000 in credit card debt at 36% interest. Instead of taking a personal loan at 14%, he opted for a gold loan at just 9.5%.

This reduced his EMI from ₹7,013 to ₹6,285, saving him nearly ₹44,000 in interest over 5 years — all by using idle gold at home.

Conclusion

A personal loan for debt consolidation can feel like a breath of fresh air—fewer EMIs, simpler tracking, and sometimes lower interest. But like any financial decision, it needs careful planning. Kavita’s journey shows the relief it can bring, while Neha’s experience warns us of the pitfalls. Check your income stability, interest rates, and repayment discipline before leaping. 

Also Read - The Real Cost of Debt Consolidation: Is It Worth It

Debt consolidation isn’t a magic wand—it’s a tool. Use it wisely, and you could reclaim your financial peace. Use it recklessly, and you may dig a deeper hole. Choose strategy over speed, and let money serve you, not stress you.

FAQs

• Is a personal loan better than a balance transfer for debt consolidation?

It depends. Balance transfers are great for credit cards if done within the offer period. However, a personal loan is more versatile for multiple types of loans.

• Will debt consolidation improve my CIBIL score?

Yes, if you repay consistently and avoid fresh debt. But applying can cause a small temporary dip.

• How much personal loan can I get for debt consolidation in India?

Most banks offer between ₹50,000 and ₹25,00,000, based on your income, credit history, and employer profile.

• What documents do I need for a personal loan in India?

Usually: Aadhaar/PAN, salary slips, bank statements, and proof of employment.