Some loans that you take may continue even after you retire, especially those with longer tenures or those that you would have taken closer to your retirement. These loans exert financial pressure on retirees not only because of the regular outflow, but also because of the headache of keeping track of multiple loans.
Debt consolidation is a cleaner way to streamline all your pending loans so that you do not have to keep track of all the loans, payment due dates, and closure.
Here’s how debt consolidation can help senior citizens in reducing their burden on multiple loans.
Consolidating Multiple Loans Into A Single Loan
The idea is pretty straightforward. You apply for a bigger loan which will pay off all your existing multiple loans. Once you pay all the existing loans from the proceeds of the bigger loan, the only loan you have to focus on is the new loan that you have just taken. You can apply for an amount within the maximum eligible limit in accordance with the bank’s norms. However, be careful to look at your payment capability and apply accordingly.
You should target to get a bigger loan that levies a lower rate of interest, allows for a longer repayment tenure, has a minimal processing fees, and has minimum or no prepayment penalty.
For instance, you could get a top-up home loan and use it to close your existing unsecured loans and high-interest loans, such as personal and credit card loans. Some other loan products that can offer you great benefits of debt consolidation include gold loan, loan against property, loan against FDs, etc.
It Removes Hassles Of Tracking Too Many Loans
When you have multiple loans, you are always on your toes to ensure that the equated monthly instalment (EMI) is paid on the due date. Any delay could cause unnecessary penalties for you.
It is also psychologically draining to see the EMI outflow in every few days. In the case of debt consolidation, only one loan needs to be serviced, and hence, you can keep easy track of it. Once the EMI is paid, you can focus on your life rather than worry about the EMI debit every 5-10 days in a month.
When choosing a bigger loan for a debt consolidation purpose, consider loans that carry the lowest charges and features, such as no prepayment penalty, lower interest rate, and so on.
It is advisable that you apply for only the amount that you really need to pay off the existing set of loans. Do not go overboard and borrow more to buy a few extra things for your pleasure and comfort.
The author is an Independent Financial Journalist