How to Use a Personal Loan to Consolidate Debt

Do you want to make 2022 the year of healthy money management practices? Then, start by tracking your expenses and making a reasonable budget. But, wait, what if you already have a large debt to pay off? This could seriously affect the balance between your income and expenses. 

If you’re struggling to make ends meet because of debt repayment, you might want to find viable options to settle it. One way to easily pay off your creditors is to go for debt consolidation. Simply put, all your existing debts will be combined into a single, large debt, which can be paid off with a personal loan. 

Personal Loan for Debt Consolidation

When consolidating your debts with a personal loan, the lender will either pay off your debts directly. Or, you can use the loan to pay the outstanding dues. After your previous debts have been paid, you will be required to make a single payment every month. 

Though this monthly loan instalment will be relatively low, this is done by extending the tenure of the loan period. This is a great option for those who struggle to manage their finances when multiple recurring expenses are involved. 

However, before you make the lump sum payment, here’s what you need to know. 

No More New Loans 

While you’re in the process of paying off the loan for debt consolidation, you must avoid taking on any more new debts. If you apply for another loan or any other debt, you will risk falling into a vicious cycle of debt repayment. 

The Debt Agreement 

In case of any delays, or you miss out, on repaying your debt, you may be charged with high fines and penalties. The personal loan you take out is exclusively for paying back the consolidated debt. 

While this may seem intimidating at first, these are essential measures that prevent you from acquiring any more new debts. Especially since you just freed yourself some significant financial distress. 

But, that’s not all, take a look at all these benefits of debt consolidation you can avail. 

1. No More Multiple Payments: It will streamline your finances by reducing the number of payments and interest rates. 
2. Easy To Manage: Your credit score won’t be affected by multiple missed or delayed payments anymore. 
3. Repay The Loan Faster: You could expedite the loan repayment by paying more than the minimum instalment. 
4. Relatively Low-Interest Rates: The loan will fare lower interest rates, unlike individual loans. 
5. Money Management Made Easier: Improved income to expenses ratio with reduced payments and interest. 
6. Heal Your Credit Score: You can recover your credit score with regular payments over time. 

With these reassuring benefits of debt consolidation, along with key areas you need to bear in mind, it’s time to find out how this works. To benefit from debt consolidation, you need to apply for a personal loan. 

Here’s are a few general documents you need to provide. 

1. Fill out the application form, online or offline, with signatures wherever required. 
2. Identity proof, or photo ID – PAN card, Voter ID, Driving License or Passport Copy. 
3. Residence proof – Phone/Electricity bill, Rental Agreement, Passport Copy, Bank Statement or Passbook. 
4. Bank statement for the last 6 months. 
5. Salaried individuals need to provide the last 3 payslips, Form 16 or Income Tax Returns. 
6. Self-employed individuals must provide the last 3 years of Income Tax Returns, Balance Sheet, and Profit and Loss Accounts. 
7. You may be asked to provide additional documents, depending on the lender’s requirements. 

Just by choosing to consolidate your debts, you can erase the hassle of juggling multiple debts.