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Mistakes to Avoid When Considering a Debt Consolidation Loan

By Chanel Rick - Jun 4,2022
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“Is debt a bad thing?” 

This seemingly philosophical question has no clear answer. People may associate debt with misery or a miraculous boon. Though, the latter is the silver lining. Taking on debt can bail you out of risky financial situations. And, if you handle it responsibly, the debt is unlikely to rear its ugly side! 

That’s correct – you have the power to steer the direction of how your debt repayment journey goes! Of course, it’s only advisable to approach lenders or avail credit if you can repay these amounts. However, things might fall apart if unforeseeable expenses strike, like a car or home repairs, medical emergencies, etc. Instead of grappling with fiscal situations, you can apply for a debt consolidation loan. 

Also Read: What is One-Time Loan Settlement? Here’s How it Can Affect Your Credit Score

What is a Debt Consolidation Loan? 

Debt consolidation loans allow you to consolidate your accumulated debts into a single loan. You can combine multiple high-interest loans like credit bills into a single low-interest loan. It makes repayment easier with more flexible options that offer other advantages. Instead of dealing with numerous monthly bill payments, opt for a single repayment plan to tackle all your outstanding debts. 

The option for debt consolidation is available for debts that aren’t linked to an asset. Unsecured loans like education loans, credit card debts and personal loans come under debt consolidation. To apply for this single repayment plan, you need to qualify for the standard eligibility criteria. Potential applicants must adhere to the following, 

●    Age: 20-60 years old 

●    Nationality: Resident of India 

●    Employment: Salaried individual belonging to MNC, private or public company

●    Salary: Min. Rs. 35,000 (as per the standard set for your city)

Before you begin applying for a debt consolidation loan, ensure all the documents are in place. These include KYC documents like ID and address proof, employee ID cards, salary slips (last two months) and bank statements (last three months)

5 Mistakes to Avoid

Unfortunately, some people still fall short of repaying their new loans. Or, other uncontrollable situations impede their ability to do so. Here are a few common mistakes to avoid after taking out a debt consolidation loan.

1. Neglecting the Problem 

If you opted for a debt consolidation loan, something is not right about your strategy for debt repayment. Without identifying the root cause of the problem, the same issue may persist during the loan repayment. To avoid falling into a vicious cycle, take time to evaluate your finances. 

2. Ignorantly Shopping for Solutions 

After multiple inconsistent debt repayment attempts, people are eager to choose the quickest option to settle their dues. While the enthusiasm is commendable, choose a solution that best suits your requirements. Some options for debt settlement are balance transfer, personal line of credit or debt consolidation loans. 

3. Still Impulsively Spending 

Once a debt consolidation loan comes through, it frees up a lot of money. However, if you aren’t careful this time around, you might wind up back in debt! Experts advise resisting any frivolous expenses that might increase your chances of falling into debt again. 

4. Not Saving for Emergencies 

Your last bout with piling dues might have wiped out your emergency funds – this is your chance to start again! Every month, try to save up on additional funds by switching to cheaper brands or opting out of unnecessary subscriptions. 

5. Opting for Longer Tenures 

While repaying the loan, a longer tenure in exchange for a smaller monthly payout may seem tempting. But, in the long run, you will end up paying a large sum as interest, even if your loan is at a lower interest rate. 

Looks like you need some help paying off those debts! Taking out a loan to repay your outstanding dues is easy. Though, bear in mind that you will still have to return this amount at regular intervals. A debt consolidation loan should be solely used to pay back your creditors – no splurging on impulsive purchases.

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