December 6, 2023

Today, you can get a loan for various purposes, like education, buying or building a new home, starting a business, or going on a vacation. Additionally, there is no limit on the number of loans you can take. Although you can easily get the desired funds for different purposes, availing of a multiple loan at once is not a financially prudent idea; there is a risk that you find yourself in a debt trap.

As the number of loans increases, the repayment responsibility also increases. Many people take more than one loan at a time, and eventually struggle to keep up with the repayments. If you too are facing such a situation, you can opt for debt consolidation.

What is debt consolidation?

Debt consolidation is a debt management strategy to pay off the existing dues and become debt-free. If you have multiple debts, managing the repayments can be challenging. It also affects your credit score, leading to higher interest on further loans.

Debt consolidation allows you to combine multiple high-interest loans into one low-interest loan and pay a single EMI. It is one of the best solutions for people nursing multiple loans and allows them to repay their debt in an organised manner.

Pros and cons of debt consolidation with personal loan


Personal loans are unsecured loans that you can borrow for any purpose. You can use it for loan or credit card dues consolidation. Here are some of the pros and cons of personal loans for repaying the debts.

With consolidation of debts, you need not remember the due dates of different loans. You must be concerned only about repaying only one EMI for the personal loan every month. Thus, taking a personal loan for debt consolidation allows you to be organised with your accounts and finances, and at the same time, reduces the risk of penalties.

Taking a personal loan is a popular way to get funds at lower interest rates. So, by opting for a personal loan and consolidating debts, you can repay the outstanding amount at a lower interest, and the EMIs would be more affordable.

When you avail of a personal loan, you will have a fixed repayment schedule, which is agreed upon at the time of borrowing. Thus, it helps you know exactly when you can be debt-free. If you have any additional funds, you can use it to prepay the loan and get debt-free faster.

Irrespective of the type of loan you avail, the lender will consider your credit score as a critical factor to determine your eligibility. By taking multiple loans and defaulting on repayments your credit score will go down significantly. However, if you opted for debt consolidation and took a personal loan to repay the amount, with every EMI you pay, your credit score will gradually improve.


Some lenders may ask for an asset as collateral against the personal loan, especially if you already have multiple loans and outstanding dues. If you fail to repay the personal loan EMI, you may risk losing the asset.

By availing a personal loan for debt consolidation, you may repay the dues at a lower interest rate. But, if the tenure for the personal loan is longer, then you may have to continue paying interest for that period.

Managing your finances requires discipline. If you spend more than your income, you will find yourself stuck in a debt trap. So, you must remember that a personal loan is to repay the previous dues. If you fail to do so, you may acquire more debt and face more financial hardship.

Final Word

So, now that you know the pros and cons of using a personal loan to consolidate debt, do your due diligence, assess your financial condition, and make a financially prudent decision.