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Debt consolidation involves a process of taking a new loan to pay off the previous unpaid debts. This is further advised for people who have incurred several unsecured loans and are unable to repay them within the given tenure. These debts could consist of several credit card debts, personal loans, or any other source of borrowing debt. HDFC personal loan offers convenient procedures for a debt consolidation loan. Further, let’s take a brief look into the benefits and disadvantages of this loan.

Pros of debt consolidation loan-

The best-case scenarios and the benefits of a debt consolidation loan are listed below in bullets so as to give you reasons to avail of this facility:

  • Manages several debts– As we have seen that debt consolidation loan is granted when the individual has taken up several debts and is unable to repay those. Thus by undergoing this procedure of debt consolidation one can credit a required amount which can help him/ her to pay back all the debt incurred and thereby pay interest of one single loan.

  • Brings back lost peace of mind– When one is under the pressure of repaying several debts, we can imagine how that person might be feeling- anything but not peace. Under such circumstances in order to bring back the peace of mind and a goodnight sleep, one can consider the option of a debt consolidation loan as it has been structured for helping out debtors. 

  • Reduces rate of interest– When you have been working to pay several loans, like that of credit cards, personal loan and other forms of debt one have to go all the way paying for the interest rate of all different debts that he or she might have incurred. Thus to prevent the extra investment of money over paying interest, it is quite convenient to pay off all loans and maintain one ransom amount, paying for the interest of just one loan. 

  • Helps improving credit score– Undergoing a debt consolidation loan does not only help you relieve your stress but also lets you achieve a higher credit score. It reduces the credit utilization ratio that ends up increasing your credit score. Further, on paying off previous loans your credit utilization ratio will improve and thus leading to a better credit score.

Cons of debt consolidation loan- 

  • Can lead to an increase in your debt if not used properly– You have to plan and manage your necessities accordingly if you do not want to increase another debt rather than decreasing the rest. Thus proper research and knowledge are needed for availing of this loan. To keep yourself in a safe place you will need to repay your new loan before even opting for it.
  • You might lose on the option of savings– When you are already indebted to more than one lender it is hard to save money for future purposes. Debt consolidation loans are used for such a purpose, where an individual is already debted. Thus even if he/ she pays off all the loans it is considered that the borrower has had a ransom loan amount to pay for utilizing a debt consolidation loan.

  • Pre-payment fees shall add up to the total expenses– Another con that comes along with a package of benefits is the payment of a pre-closure fee that has to be paid to the existing lender in order to close the loan account. This can be proved to be hectic as payment of this expense will add up to the total expenses for consolidating the entire debt. Thus it is important to look for the pre-closure fee with the existing lenders.

Like most financial schemes a debt consolidation loan comes with a package of advantages and disadvantages. Finally, it will always be your decision whether or not to opt for this facility. Still, overall, the procedure is proved to be quite beneficial and stress relieving as it clears other debts. 


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