How I Reduced my EMI by ₹12,000 Using Debt Consolidation?

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• You have to pay a single EMI instead of multiple if you get a debt consolidation loan. 

Why are multiple loans stressful?

Six months ago, I had an educational loan. Later, I took out a personal loan for my father's medical expenses. Then I used my credit card for home repairs. A few months later, I bought a scooty on EMI. 

These loans were manageable individually. But after some time, it became difficult. 

My monthly loan payment before debt consolidation was:

My salary was not enough to bear ₹36,000 as EMI and other daily life expenses; then I realised that I needed to change something.

What solution should be found for this problem? 

 After debt consolidation, I didn't have to pay multiple EMIs; I would only have one EMI. 

So, I went to the lender, and the lender approved the application after reviewing the background and documents. The process was really easy. 

How does debt consolidation help reduce monthly EMI?

When the lender approved debt consolidation, my payment became like this.

After debt consolidation, you can save ₹12,000 but the actual financial savings depends on the interest rate and other charges. It gave me breathing space, and this is how I used a personal loan for debt consolidation.

How to manage multiple EMIs? 

I had read about debt consolidation in an online blog. The idea was simple. After debt consolidation, I didn't have to pay multiple EMIs; I would only have one EMI. 

So, I went to the lender, and the lender approved the application after reviewing my background and documents. The process was really easy. 

How to apply for debt consolidation?

Here are the steps with which I applied for debt consolidation. 

1. First, I checked the eligibility criteria for debt consolidation. I noticed that lenders usually check borrowers' debt-to-income (DTI) ratio, monthly income, CIBIL score, and existing loan EMIs.
    
2. After that, I compared different lenders. I checked banks' and NBFCs' processing fees, interest rates, loan tenure, and foreclosure or prepayment charges.
    
3. Then I gathered all the documents, which included Aadhaar, PAN, salary slips for the last 3 to 6 months, Form 16, and bank statements. 

Then my lender reviewed all the documents and approved the debt consolidation loan. 

What changes after debt consolidation?

The biggest change for me was the reduction in EMI payment by ₹12,000. It was really a massive relief in my monthly cash flow. Other than this, there were some shifts in the financial situation. 

1. Earlier, I used to juggle a lot due to due dates, the benefits of a debt consolidation loan in India, and the headache of tracking various consumer credit products. Now I don't have to worry about these things. 
    

• I replaced multiple loans with a single debt consolidation loan, making repayments easier to manage.
• I had only one EMI to manage; it became easier to plan my repayments.
• I didn’t face all the above changes after debt consolidation. 

What are the benefits of a debt consolidation loan in India? 

Let me tell you about the benefits of debt consolidation. 

• Simplified Repayments: Now I don't have to track every EMI. I just need to do one single transaction.

• Lower Risk of Missed Payments: With debt consolidation, it reduces the chances of missing EMI payments because you only need to remember one due date.

• Better Financial Planning: After combining all EMIs into one payment, I felt relaxed and free to do other financial planning. 

• Potentially Lower EMI: With the debt consolidation method, if my new loan has a lower interest rate or a longer repayment period, my monthly EMI may decrease.

• Opportunity to Improve Credit Score: When I missed one EMI, it directly affected my credit score. But now, making timely payments on the new loan may help improve my credit score over time.

So, debt consolidation isn't just a method; it is a stress reliever for you if you are struggling with multiple EMI payments.

What are the risks of debt consolidation?

Debt consolidation isn't just about benefits. It has some negative sides too. 

• Higher Interest Rates: Borrowers with weaker credit profiles may receive higher interest rates because lenders consider them a higher credit risk. 

• Additional Fees: Lenders can charge upfront processing fees or back-end foreclosure and prepayment penalties. This can quietly eat into your expected savings.

• Longer Repayment Period: Lower EMIs may result in paying more interest over time.

• Approval Is Not Guaranteed: A poor credit history can still result in loan rejection. This means there is no guarantee you will get approval for debt consolidation. 

Debt consolidation only helps if spending habits change. So, these are the drawbacks of debt consolidation. You can compare and apply for debt consolidation. 

Who should consider it? 

Debt consolidation is not for everyone. It is for only those who have multiple loans in their name. Let me tell you who can go for debt consolidation. 

1. Some debt consolidation loans come with lower interest rate But sometimes the new loan may have a higher rate or additional charges, and a longer tenure can increase the total interest paid.
    
2. If you are paying multiple EMIs and finding it difficult to manage. Debt consolidation is for you.  
    
3. Debt consolidation may reduce the monthly EMI if the new loan has a lower interest rate, a longer tenure or other favourable terms.

Debt consolidation is effective when you avoid taking on new debt. If you continue using your credit cards after consolidating your loans, you may end up with even more debt than before.

Conclusion 

The debt consolidation loan worked for me. It combines multiple loans into one EMI. It improves your monthly cash flow. It can also help reduce your interest burden and lower the risk of missed EMI payments. 

If you are someone who is struggling, like I am, with multiple loans and finding it difficult to manage your monthly EMIs, debt consolidation could be a proactive solution.

You should compare different banks and their interest rates before applying for a debt consolidation loan. Also, after getting a debt consolidation loan, you should not go for a new loan. It will increase the burden on you. 

Frequently Asked Questions 

1. Does reducing my monthly EMI by ₹12,000 mean I saved ₹12,000 every month?

A ₹12,000 reduction in EMI doesn't mean it's a monthly saving. It means your monthly payment has decreased by ₹12,000. Overall savings depend on the interest rate, loan tenure, and processing fees. That's why, before getting a debt consolidation loan, you should check different lenders' interest rates, tenure, and fees. 

2. How can a debt consolidation loan reduce monthly EMIs without reducing the total debt immediately?

The loan can combine multiple outstanding debts into a single loan with a different interest rate and repayment tenure. Extending the repayment period can lower the monthly EMI even though the principal amount being repaid may remain broadly similar initially.

3. What information should I calculate about the loan before reducing my monthly EMI?

When you go for a new debt consolidation loan with a lower EMI, you should always calculate the outstanding amount, current EMIs, and interest rate. Also calculate the remaining tenure and prepayment charges. Now compare all these with the new debt consolidation loan. 

4. Why EMI Limits Vary by Lender?

People with high income can spend larger amounts on EMI because their remaining income is sufficient for their living expenses, and people with low income can not spend a high amount on EMI. Also, people with a good credit profile and better credit history are granted higher EMI-to-income ceilings. All these factors are important in EMI, and these vary from person to person. Also, every bank sets its own internal risk policies. That's why EMI varies by lender. 

5. Does choosing a longer tenure always make debt consolidation a better option?

This is not necessary. A longer tenure can reduce the monthly EMI, but it can increase the total interest paid over the loan period. If you want the right tenure, you should balance affordable monthly payments with the overall cost of borrowing.

6. Should I include credit card dues when calculating the EMI reduction from debt consolidation?

If the consolidation loan permits credit card debt to be included, you can factor eligible card balances into the calculation. Compare the interest cost of those balances with the cost of the new consolidation loan before deciding.

7. What happens to the old EMIs after taking a debt consolidation loan?

The old loans or eligible debts need to be repaid and closed according to the consolidation arrangement. Once they are settled, you should verify that the previous lenders have updated the accounts correctly and that you are left with the new consolidation-loan EMI.

8. Can my monthly EMI increase again after debt consolidation?

Yes, particularly if you take on new loans or accumulate fresh credit-card balances after consolidation. The EMI reduction works best when the consolidated debts are not replaced with additional borrowing.

9. How can I confirm that the ₹12,000 EMI reduction is actually beneficial?

Compare the total amount before and after consolidation, then compare the total amount payable over the remaining rearrangement periods. Also account for processing fees, foreclosure charges and other costs to determine whether the reduction improves your overall financial position.

10. What is the lowest CIBIL score possible?

TransUnion CIBIL issues a CIBIL report, and the CIBIL score is mentioned there. The CIBIL score shows the creditworthiness of the borrower. That's why it is an important factor. This CIBIL score ranges from 300 to 900. That means 300 is the lowest CIBIL score.