Loan consolidation: Is taking one personal loan to retire all outstanding debts a smart move?

Personal loans: Have you ever considered whether a borrower – with multiple outstanding loans – contemplate taking a fresh loan? Is this advisable for him/her to take a fresh loan and using its proceeds to retire all the existing loans? Typically, it is a common practice and it offers multiple advantages such as ease and convenience of managing one loan only. 

However, you must ensure that you do not end up with a higher overall cost such as processing fees and insurance charges. Therefore, you should consolidate debts only if you are confident that you will not raise any fresh debt.

Debt consolidation: These are some of the key advantages 

Lower interest: If your new personal loan offers a lower rate than your current loans (credit card debts, payday loans, etc.), you can save a lot on interest.

Credit Score: If you clear numerous debts with a fresh loan and then pay your personal loan well on time, then your credit score is expected to improve considerably.

Single EMI: Rather than keeping track of 3 to 4 different due dates, you only have one instalment to pay every month — which is easier to manage for obvious reasons.

Fixed tenure: Some small loans or even credit card debts may not have a clear date of closure of loan. On the other hand, a personal loan typically has a fixed timeline (say, 3 or 5 years). Therefore, you exactly know when you will be debt-free.

Less stress: Less mental load from tracking multiple lenders, different penalties, and due dates.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit. 

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