A Debt consolidation loan can assist you in repaying multiple loans; however, it will not change the total amount of your debt or the overall interest rates; for this reason, it is called a consolidated" loan.

A debt consolidation loan combines multiple debts into one loan with one payment due each month.

How it Works:

• Your current balance is the total of all debts you have not paid off.
• All of your existing debt is paid off using this new loan.
• You now owe only one lender with one monthly payment.
• Your term and interest rate will be restructured.

Benefits of Debt Consolidation Loan:

• Simplified monthly payments
• Fewer chances of missing payments on debt
• Lower amount paid on interest over the life of the loan.

Debt Consolidation loans are primarily for unsecured debts or loans with high-interest rates and can help combine multiple debts into one single structured payment plan.

Typical types of debts acceptable to be incorporated are:

• Outstanding credit card debt (which typically has a large amount of interest).
• Bank or NBFC based personal loans.
• Loans to purchase consumer goods and other types of small loans.
• Loans taken for medical situations or emergencies.
• Short term, payday loans.

Things to be aware of:

• Secured loans such as home or car loans do not usually qualify.
• How many debts the lender will allow into a consolidation loan may be limited by the lender.
• All debts to be included must be clearly documented prior to the loan being approved.

A debt consolidation loan can lower the total amount of interest you pay using a new loan to substitute your existing debts, as long as the new loan terms have lower interest rates than those on your existing debt.

By doing this, the new loan will help lower your total interest and how to do it:

• Replacing an existing debt, such as a credit card, that charges a high amount of interest (like an interest rate of 30%+), with a loan that has a much lower interest rate (typically in the range of 10% to 18% interests).
• A new loan with a fixed interest rate allows you to have the same amount to pay every month with a fixed payment for the term of the loan (as fixed rate loans have consistency with payments).
• When a new loan allows for a longer term, the amount you pay per month (EMI) can be maintained at a low level.
• When determining if you were able to lower your total interest, you would consider the additional costs of processing fees or other charges associated with the loan.

The overall amount of your savings is determined by your monthly repayment behaviours.

A debt consolidation loan is good for people who have trouble handling their bills or numerous debts that cost a lot in interest.

Examples of good candidates for a debt consolidation loan include:

• Anyone with more than one active loan or credit card.
• Someone who has missed or delayed their loan payments.
• Someone who is paying a very high-interest rate.
• Someone who is employed full time or self-employed, and has a steady source of income.

When a debt consolidation loan isn’t good for you:

• If you can manage all of your current debts.
• If the terms of a new loan are not better than what you already have.
• If you are at risk of accumulating more debt in the future.