It is the right time to consider debt consolidation if you’re struggling with the high-interest rates of credit cards and loans that barely make a dent in your debt. That’s a tactic where at a cheaper interest rate, you roll several loans into one monthly payment to pay off the debt more quickly. A debt reduction loan, a personal loan, a credit card balance transfer, a Loan Against Property, or borrowing money from friends or relatives are some options for letting it be possible. Your debt type, how you ended up in debt, your credit score, and your financial priorities will depend on which one makes sense for you.
Home equity loan or vehicle loan
One form of debt is unique to debt consolidation: unsecured debt. That means debts such as credit card dues, medical expenses, and education loans are not tied to security/collateral (home or vehicle). Debt restructuring doesn’t decrease the principal balance you owe, so reducing the interest rate, it reduces the overall costs. That is why it makes sense for high-interest lending such as credit cards. That’s also why financial experts warn against financing your property or car through an auto or home equity loan. Your debt to income ratio is one of the first things to which a home loan officer pays attention. It dictates that if you can make mortgage payments per month while also paying off other loans. To do this, they sum up your recurring contributions and split them by your gross salary (Income excluding taxes and other deductions). Experts suggest a debt-to-income ratio of less than 43% to get a qualified mortgage. Let’s assume you like a mortgage that is equivalent to a ₹ 16000 monthly payment. And add it to your per month education loan contribution of ₹2600 and an auto loan payment of ₹ 1400, and your gross monthly debt is equivalent to ₹ 20000. If ₹ 60000 is your total monthly revenue, your debt-to-income ratio is around 33% (20000/60000) which will meet the home loan benchmark. In securing a mortgage, the credit score still plays a part. Your credit is one way that lenders determine whether or not they want to take you on as a borrower. Credit ratings will also calculate the interest rate that you are given on your home loan. Generally, good credit allows you for lower interest rates. Your credit score gains from reducing or getting rid of debt and also helps in improving the ratio of debt to income. For starters, to minimize or get rid of monthly car payments, some borrowers sell an expensive car and purchase a less expensive one or use public transportation.
Before having a mortgage, here are other ways of strengthening your credit:
- Pay bills early or on schedule
- Lower the revolving credit (Pay your credit card dues) you hold.
- For a while, don’t make any significant transactions.
- Check for red flags for lenders, and get your free annual credit report, approved by authorities. Work with the credit rating agencies on the report to get rid of any inaccuracies.
One of the simplest and best ways to build your credit is with a secured credit card if you’re only beginning to create credit, or starting over. Typically, buying a house involves making a down payment. Lenders want you, so to speak, to have skin in the game so that you’re able to make the loan payments. You could have created some reserves that you could use for a down payment, investments, and/or a retirement plan if you’ve been working for a few years. You are eligible to borrow and buy a home from your EPF, and you pay it back by regular contributions. However, before you do this, hear from the company benefits supervisor the advantages and drawbacks– if there are certain disadvantages.
Down payment support
There are a series of low to no down payment loans in today’s mortgage market. You may be eligible for assistance through your salary, or the state/region where you are purchasing a home. A mortgage loan officer will direct you through the services available.
Ask for assistance: gifts and co-borrowers
There’s no cap to the amount of gift money that will go towards a down payment on a primary residence if you’re lucky enough to have a relative who’ll help you out. Or to pay off other loans and lower the debt to income ratio, gifted funds may be used.
The examples mentioned above can be utilized to consolidate your debt without taking a personal loan. Even with the Lowest Personal loan Interest rate, these options are still more economical than personal loans.