Debt consolidation is a financial strategy that allows you to combine multiple debts into a single loan, often with a lower interest rate and more manageable payment terms. This can be especially helpful if you're struggling with overdue payments. Falling behind on your debt payments can happen to anyone. An unexpected medical bill, a job loss, or other unforeseen expenses can make it difficult to keep up with monthly payments. If you have overdue payments and accrued late fees, your reports may be sent to collections, or your interest rates may be increased as a penalty.
Not paying off your debt can also damage your credit score and make it harder to get your finances back on track. Under such circumstances, one can choose to clear overdue payments with a personal loan. Personal loans allow you to consolidate multiple payments into one fixed monthly payment at a lower interest rate, making repayment more manageable.
Here's a step-by-step guide on how to approach this solution.
1. Assess Your Financial Situation
You would first need to assess your current financial situation before taking action. Start off by making a list of all your outstanding payments - credit cards, personal loans, etc. For example, suppose you have three loans: Loan 1 is ₹40,000 with a 15% interest rate, Loan 2 is ₹25,000 with a 12% interest rate, and Loan 3 is ₹35,000 with a 10% interest rate. In total, you owe ₹100,000 across these accounts, each with its own required minimum payment. By consolidating, you can combine these into one loan with a single, more manageable payment.
Next, review expenses and credit scores. Calculate how much you can reasonably afford to pay each month towards a consolidated personal loan payment. A thorough loan overdue calculation will give you an idea of the total amount needed to clear your overdue balances. That will give you an idea of what amount you need to borrow.
2. Research Your Loan Providers
Once you know your financial obligations, start researching potential lending companies. If needed, look for ones specialising in debt consolidation loans for bad credit borrowers. Compare interest rates, fees, loan terms, and eligibility requirements.
Depending on your situation, it is ideal to choose the financial institution with the lowest rate possible, flexible loan terms, and limited fees.
3. Apply for the Personal Loan and Get Approved
Once you have picked out a lending institution and amount, you can proceed with the loan application process. Be prepared to provide:
- Your personal and employment details
- Income verification documents
- Bank account statements
- Details on debts and assets
- Any other requested financial information (asked by the lending institute)
Once you are approved for the loan, carefully read the agreement before signing. Get clarification on any confusing terms, and be sure you understand the repayment details. Ask questions upfront to avoid clashes later.
4. Consolidate Your Payments
After securing your loan, it is time to pay off those overdue payments. First, make a list of all accounts you want to consolidate and the exact payoff amounts.
Use your approved loan funds to pay each creditor the necessary amount. Be sure to follow their payment instructions precisely. Also, request a receipt showing the account has been paid in full. This will protect you if any issues arise down the road.
As you clear overdue payments with a personal loan, your credit report will be updated to show those accounts as 'paid' instead of 'past due'. This will start improving your credit right away.
5. Manage Your New Loan Wisely
After settling your overdue payments, start managing your new personal loan wisely. Stick to the repayment schedule and make timely payments so that no extra debt is incurred. Prepare reminders or automatic payments so that you don't miss any dates to clear personal loan balances.
To avoid future financial crises, review your budget and balance it correspondingly. Observe your expenditures and outline a plan to manage your finances properly. This might involve removing unnecessary expenses, increasing savings, and avoiding any new credit for the time being.
Conclusion
Falling behind on bills happens, but it doesn't have to permanently damage your finances. A personal debt consolidation loan allows you to bundle all your accounts into one manageable payment and repay the principal overdue in your loan account. This can help you save on interest, avoid collector calls, improve your credit, and simply get back in control of your money.
