Debt Consolidation


Sometimes keeping track of repayment schedules for different loans can be problematic. In such a scenario, it is always a good idea to opt for debt consolidation. In other words, take a new loan to pay off all different loans and keep just this one loan to pay off all your debts.

  1. What is Debt Consolidation?

In simple terms, it is a refinancing scheme to consolidate different loans into a single loan. This helps keep an easy track of the dues and takes away the pressures of following up on repayments over some time each month.

  • Consolidates debt by using only one loan to pay off the dues.
  • Repayment is through a single EMI instead of multiple EMIs.
  • Takes away the burden of keeping a record of multiple deadlines to pay off debts.
  1. When should You Go in for Debt Consolidation?

Debt consolidation suits people who miss EMIs because of a slip in keeping trail of schedules. Do remember missing even one EMI can affect the credit score and create difficulties in seeking new loans in the future. Moreover, the cumulative interest paid for, say five loans, will in all likelihood be much more than the interest to be paid for one consolidated loan. In other words, a debtor should ask the following questions and decide if he or she should opt for debt consolidation.

  • Am I having an issue keeping track of different loans I have taken from Banks and other financial institutions?
  • Am I likely to miss an EMI because of the multiple dates on which I make repayments of different loans?
  • Is the cumulative interest I am paying on the various loans I have taken hitting my bank balance hard?
  • Are you making any savings by taking a single loan?
  1. Steps to Follow if One Opts for Debt Consolidation

Debt consolidation requires some basic calculations. The cumulative interest on all outstanding is the first estimation to do. It works only if the interest paid is less than the aggregate interest charged by the different loans. In addition, check if the monthly budget allows a single repayment. Moreover, it is important to check the frequency of incoming credit. If it is staggered then repayment over different dates is more convenient.

  • Calculate interest payment.
  • Check Frequency of credit inflow.
  1. Methods of Debt Consolidation

A loan from a bank or an officially sanctioned lender like a financial institution is the typical way for debt consolidation. The credit history must allow for a single loan to be larger or equal to the current accumulated outstanding. These loans can be of various types. Such as:

  • Balance Transfer Loan

The balance outstanding to multiple credit sources gets transferred to a single lender.

  • Personal Loan

A personal loan is taken from a bank or a lender to pay off multiple dues.

  • Home Equity Loan

A fixed asset like a house is given as collateral to take a loan.

  1. Does Debt Consolidation Work for All?

The simple answer to this question is No. Debt consolidation is not the answer to all problems for everyone in debt. It will work for people who have financial discipline. If repayment is to be done in one year and the EMIs are paid on time, the person will become debt-free in a year’s time. But if EMIs are missed, the interest keeps getting accumulated defeating the entire purpose of taking a single loan to write off multiple loans. In other words, this demands strict fiscal discipline.

  • It is important to check spending habits.
  • Repayment must be strictly on time.


In conclusion, debt consolidation is not the panacea for all personal financial problems. It is rather, just one tool of convenience and works only if there is financial self-discipline.