Home > Finance > Pros and Cons of Consolidating Debts with a Personal Loan

Pros and Cons of Consolidating Debts with a Personal Loan


Personal loans are a savior for anyone in a financial emergency. They are better than credit cards in more ways than one. Making multiple payments each month to various lenders can take a toll on one’s budget and pocket. Personal loans come handy to consolidate the dents and make the repayment process smooth and cheaper. But before consolidating different debts, it is advisable to figure out the best available alternatives.


  • The interest rate can be reduced

If you avail a personal loan with a low rate of interest, then chances of saving on some money which would otherwise go to the lender as interest are high.

  • Timely repayments

A personal loan comes with a defined repayment schedule wherein the borrower needs to pay a pre-decided amount as EMI every month. And with personal loans being a commitment a long time, you are aware when you will go completely free of debt if you pay on time.

  • Boost to credit score

The credit score is a very important aspect of your credit and debt. Timely repayments of your loan and credit card bills can amp up the credit score significantly. Default or late payments can however negatively impact the credit score.

A low credit utilization ratio defines you as a smart credit card user and shows well in your credit report. Consolidating debts with personal loans can better your credit score if it helps you to maintain a lower credit utilization rate.


  • One may pay a higher interest rate

If you do not get a personal loan with a lower interest rate then there is no point consolidating your debts as it may end in you paying more as interest than you were actually paying.

  •  One may pay more interest

A personal loan with low-interest rate is also no guarantee of savings as long repayment tenure means you end up paying more interest.

  •  Additional fees and charges may cost you a bomb

Lenders usually charge application fees, processing charges, prepayment penalties, etc which disturb the total statistics and purpose of shifting to the personal loan. Consolidating debts with a personal loan can thus be a costly affair.

  •  Assets may be at risk

If you opt for a secured personal loan and put any of your assets or property as security, then your assets may be at risk if you default in repaying the loan. The asset can also be at risk if you are consolidating debts that were without any collateral attached with a personal loan with collateral.

  •  You could end up with more debt

If you are not able to pay off the personal loan on time or you again use your credit cards of which you freed up through the personal loan, you are putting yourself again in the debt trap which could worsen your financial situation.

Consolidating your debts with a personal loan is best if you manage your finances properly and do not go overboard with it. Also, it is advisable to weigh the pros and cons stated above before plunging onto the shift. Get thorough with the terms and conditions and be disciplined with the repayment schedule if you wish to make yourself debt free totally. Loans Jagat offers personal loans for salaried and self-employed from different lenders. One can visit the easy to navigate web-portal and compare different lenders that suit their offerings, choose the most suitable lender and apply for the personal loan directly from the LoansJagat website. The award-winning and dedicated team at LoansJagat will look into your application processing until the time loan is approved and disbursed in your account.

TAGS , ,
Sujain Thomas Sujain Thomas is a leading blog writer and expert travel photographer. She has written numerous articles and blog posts on topics related to Travel, Food, Lifestyle, Home Improvement, and Photography, etc.
Business Module Hub