Debt Consolidation

Definition

Debt consolidation involves taking a single loan (usually secured, like LAP) to pay off multiple high-interest debts — credit card balances, personal loans, and other unsecured obligations. By replacing 15-36% interest debts with a single 9-14% secured loan, borrowers significantly reduce total interest burden and simplify repayment to one EMI.

LAP is the most common vehicle for debt consolidation in India — property owners can borrow at secured loan rates to clear expensive unsecured debts. The strategy works best when the consolidated rate is significantly lower than existing rates and the borrower commits to avoiding new high-interest debt.

Frequently Asked Questions

How does debt consolidation save money? ▾

By replacing high-interest debts (credit cards at 24-42%, personal loans at 12-24%) with a single lower-rate loan (LAP at 9-14%), reducing total interest paid significantly.

What loan is best for consolidation? ▾

LAP offers the best rates for property owners. For others, a personal loan at a lower rate than existing debts or a balance transfer can work.

Are there risks with debt consolidation? ▾

The main risk is using the freed-up credit to accumulate new debt. Also, converting unsecured debt to secured (LAP) puts property at risk if repayment fails.

Why It Matters

Debt consolidation can save substantial interest by replacing expensive debt with cheaper borrowing. It also simplifies financial management with a single EMI payment.

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