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Advantages and Disadvantages of Debt Consolidation Loans in India

Debt consolidation is something that people come to consider when and if they find themselves dealing with the burden of debt. As you may know, debt consolidation means using loans to pay off liabilities and consumer debts.

What this does is that it combines several debts from personal loans, credit cards etc into a single, bigger debt, which usually comes with favorable pay-off terms such as low interest rates and low monthly payments. If you are considering consolidating all of your unpaid debts, then you might want to check out somewhere like for some more information that could make this serious financial decision a bit easier for you.

Debt Consolidation Loans

If you find yourself in a position where you must consider debt consolidation, you need to be aware of the advantages and disadvantages that come with it before you make your decision.

Debt consolidation has quite a lot of advertisement both online and offline; the trouble with this is that advertisement only focuses on the virtues of a particular thing and this can persuade people to make decisions that are not in their best interest at the end of the day.

Advantages of Debt Consolidation

Debt consolidation does has its virtues and it can be the right decision for you to help you get out of debt in certain circumstances. Here are the advantages that make debt consolidation appealing:

Many Payments Become One

Debt consolidation is most helpful when a person owes more than $10,000 and doesn’t stop getting calls from collection agencies. When a big debt is consolidated, multiple payments are bundled into one. This makes organization very simple because you won’t be forced to prioritize payments or calculate how much money you can send out to each creditor. When it comes to peace of mind, this is an important advantage.

Low Interest Rates

The issue with debt is that when it’s large, you’re forced to spread it out, which means more loans and credit cards. When it comes down to it, you’re paying a lot more than you think in finance charges. One of the greatest advantages of debt consolidation is that when you bundle all of your debt, you only pay interest on a single loan and in these cases it’s very common to be granted lower interest rates. This will save you a ton of money as you fight your way out of debt.

Low Monthly Payments

The most stressful aspect of debt is it’s a monthly struggle. Debt consolidation is one way of lowering your monthly payment because instead of having several payments to make, you’ll only have to deal with a unique payment at low interest rate. This means that you’ll be paying a lot less, which gives you an opportunity to organize and prepare a lot better.

Disadvantages of Debt Consolidation

Even though debt consolidation can be useful, it’s not the perfect solution and it can have major drawbacks. Before you make a decision you need to consider the good, the bad, and the ugly, so here are the disadvantages of debt consolidation:

It can Lead to More Debt

Debt consolidation is something with which you need to be cautious. The main appeal of this tool is that it will allow you to have extra money, which means you won’t be so limited in your expenses. The smart thing to do is putting this extra money away or using it to further pay your debts. However, there are people who use this money to get into even more debt which could lead you to the beginning of a very harmful cycle.

It can Lead to More Expenses

When it comes to debt consolidation you have to understand that depending on the size of your debt, it may take you some time to pay it all off. What debt consolidation companies tend to conceal is that even though your interest rates are lower, you may end up paying a lot more interest than you thought. The key is to get rid of your debt as soon as possible, and this can only happen if you are organised and determined to pay off your loan.

Loses can be Significant

Secured or collateral loans can seem like a good idea, but if you miss one payment you’ll be risking big loses. Let’s say you use an auto equity loan to consolidate debt, this means that you’re putting your car on the line if you fail to make a payment. If you do this with your home, the loss is even bigger. Credit card debt, on the other hand, is a type of unsecured loan that presents a lot less risk because worst case scenario is that your rating and score will suffer a bit.

Your Credit can be on the Line

One of the services that debt consolidation companies tend to offer is credit settlement, which is simply an agreement between creditor and debtor to settle for less than the amount owed. What representatives do is that they offer a lump-sum payment to creditors for less than what you owe and then they intentionally make you delinquent on your debts in order to have leverage. As you can imagine, this leads to one of the biggest disadvantages about debt consolidation: it will completely wreck both your credit history and score.

It Won’t Cure the Disease

One of the most important things to keep in mind about debt consolidation is that it’s not a magic wand that makes your debt or the causes of your debt disappear. Debt consolidation only deals with the consequences, but the causes need to be addressed and dealt with. If you don’t work on changing the actions that created your debt in the first place, you’ll find yourself having the same problem over and over again.

If you consider all of the aforementioned, you must see that debt consolidation is not a one-fits-all kind of solution. You have to consider whether or not this tool is helpful to your particular situation before you take the plunge.

Also Read: 3 simple methods to consolidate credit card debt

We recommend you meet with a financial counselor and discuss this move in depth. Perhaps you’ll find that debt consolidation is not the right choice and that there’s a much simpler solution to your particular problem, such as balance transfer credit cards.

Debtor Management is critical to ensuring your business has sufficient working capital to reinvest and grow. If you work for a business looking to stay healthy and growing, take a look at these debtor management tips to ensure your cashflow management system is as robust as it can be.

Readout more about Debt Consolidation loans on

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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