It began with a small loan that you couldn’t repay on time. Then, you had to take another loan to repay the older one. Your spendthrift ways continued. You had credit cards and you kept making minimum payments and kept rolling over debt. Gradually, things started getting out of control. The high rate of interest got difficult to manage and the penalties for late payments and other ancillary charges added to your problems. Sometimes, you just forgot to make the payments and had to incur penalty. This can happen when you have to manage many loans. When you have too many payments to manage and lack of cash, even auto-debits won’t be effective. Failed debits will only cause problems. Therefore, you must manage payments manually. By the way, missing payment deadlines adversely affect your credit score.
With multiple loans, there are many leakages from your cash flows. Purely from a financial planning point of view, I would prefer one big loan as compared to 5-7 small loans. It is easier to manage and do mental accounting. Therefore, it is easier to plan too.
We have considered many strategies on this blog when your debt goes out of control. We have discussed balance transfer for credit cards. We have discussed debt management methods such as debt avalanche and debt snowball. However, one of the simplest is just consolidate all your loans under a single loan and then attack that loan with complete focus.
Under debt consolidation, the approach is to take out a new personal loan big enough to pay off all your other loans. I assume the personal loan is cheaper than all the other loans you are struggling with. If not, then you need to rethink the strategy. It is not smart to take a high cost loan to pay off a low-cost loan.
The benefits of debt consolidation are:
- Lower interest cost and payments
- Comfortable repayment tenures
- Fixed monthly payments (easier to plan)
- Avoiding penalties and other charges
- Lower stress and better focus
- Improvement in credit score
Now, under debt consolidation, you simply have to manage to get a personal loan but that’s not always going to be easy. Your past record can play a spoiler. While you can apply for a plain vanilla personal loan from any bank, I recently found that Bajaj Finserv offers a personal loan that is specifically for Debt Consolidation. I do not know how easy or difficult it is to get this loan as compared a personal loan from another bank. However, the nomenclature would suggest that they may take a kind view of your application.
Bajaj Finserv Personal Loan for Debt Consolidation: What Are the Benefits?
Going by Bajaj Finserv website, you get the following:
- Loan upto Rs 25 lacs
- Instant approval
- Money in your account within 24 hours
- Flexible tenure ranging from 24 to 60 months
- Flexi loan (You can read about pros and cons of Flexi loan in this post)
Let’s call a spade a spade. This loan for Debt Consolidation is nothing but a Bajaj Finserv Flexi Loan. However, there is one interesting point about Flexi loans that will be useful in such cases. Flexi loans allow you to pay only the interest amount. Under personal loans, you must pay the EMI, that includes both principal and interest. When the premise for taking a loan for debt consolidation was inadequate cash flows, this flexibility of making just the interest payment could be handy. Moreover, you can borrow/repay as many times as you want (before the expiry of loan tenure). This product can give you flexibility.
At the same time, interest only payments also mean higher absolute payments. There may be a tendency to overspend too. Thus, you will need to keep your spending urges under control or you will have to look for another debt consolidation loan soon. I have not considered the impact of processing fee and ancillary charges that will add to your cost of loan.
The concept of debt consolidation is quite useful. If you are struggling with many loans, debt consolidation is a good way forward. It makes debt management easy and helps maintain focus. The choice of consolidating loans is secondary. You must explore personal loan options from other banks or financial institutions too before making a final decision. Bajaj Finserv Debt Consolidation Loan, due to its flexi structure, offers repayment flexibility that other loans may not offer. At the same time, this flexibility should not come in the form of a high rate of interest. I trust you to look through the pros and cons of various loan products and pick up the best one for you.