What is the debt consolidation method?

Debt consolidation refers to the method of combining multiple outstanding loans into a single consolidated loan. The purpose is to simplify repayment and reduce the overall interest cost. Under this method, the borrower takes a new large loan to pay off or close the various existing loans they may have, such as personal loans, credit card dues, car loans, etc.

By consolidating the debt into one loan, the borrower has only one EMI to pay every month instead of remembering multiple due dates and keeping track of different loan providers. Moreover, the interest rate on the consolidated loan is usually lower than the interest rates on the existing loans, especially credit cards. This helps in reducing the monthly repayment burden and total interest outgo over the tenure of the loan.

The new consolidated loan may be taken from the same financial institution as one of the existing loans or from a completely new one. Banks and NBFCs offer attractive interest rates on debt consolidation loans to customers with good credit scores and stable incomes. These loans help the borrower simplify debt repayment and achieve financial prudence.