Debt Consolidation vs Mortgage Restructuring: Which one works finest for you? Discover out
Selecting between the 2 relies upon fully in your state of affairs. In case you’re managing your EMIs however coping with a number of high-interest money owed, consolidation might supply comfort and value financial savings.
Mounting debt is a actuality for a lot of Indian households. With rising residing prices, job uncertainty, and easy accessibility to credit score, hundreds of thousands discover themselves juggling a number of EMIs or scuffling with overdue loans. In accordance with TransUnion CIBIL, non-performing property on bank cards surged by 28 per cent in 2024 alone, touching Rs 6,742 crore. In such conditions, two monetary methods typically come into play – debt consolidation and mortgage restructuring.
In accordance with Kundan Shahi, Founder, Zavo, whereas each goal to ease the burden of compensation, they serve totally different wants and are suited to totally different eventualities.
Let’s take a more in-depth take a look at what every means and the way to decide which one may work finest for you.
What’s Debt Consolidation?
Debt consolidation is the method of mixing a number of money owed, comparable to bank cards, private loans, and payday loans, right into a single mortgage. As an alternative of monitoring totally different EMIs and rates of interest, you are taking one mortgage to repay all of them and concentrate on a single, simplified fee.
“This new mortgage ideally comes with a decrease rate of interest or longer tenure, lowering your month-to-month outflow. As an illustration, bank card debt in India can carry rates of interest starting from 30 per cent to 48 per cent every year, whereas a private mortgage may need an rates of interest starting from 11 per cent to 22 per cent. Changing high-cost debt with a lower-interest private mortgage or a top-up on your property mortgage can result in important financial savings,” Shahi stated.
In accordance with the professional, debt consolidation is simplest when you’ve a gradual earnings and an honest credit score rating. It not solely streamlines your funds but in addition helps enhance your credit score rating if you happen to keep disciplined with repayments. Nonetheless, this methodology requires eligibility. Lenders assess your credit score profile earlier than approving the brand new mortgage.
“With out good monetary habits, there’s a threat of falling again into the debt lure, particularly if spending doesn’t lower,” he added.
What’s Mortgage Restructuring?
Mortgage restructuring is a aid mechanism supplied by your present lender once you’re unable to repay a mortgage on its authentic phrases. It could contain extending the mortgage tenure, lowering the rate of interest, pausing funds quickly, and even waiving a portion of the excellent quantity. This methodology gained widespread recognition in the course of the COVID-19 pandemic, when over 50 lakh Indian debtors had been granted moratoriums or restructuring choices.
Not like consolidation, restructuring is mostly a final resort. It’s designed for debtors dealing with real hardship, comparable to job loss or earnings disruptions, who’re vulnerable to default.
“The lender assesses your state of affairs and will alter the mortgage phrases to keep away from complete loss. Whereas this supplies short-term aid, it could include long-term penalties. Most restructured loans are flagged in credit score studies, which might decrease your rating and have an effect on your future mortgage eligibility,” the founding father of Zavo stated.
Which One Ought to You Select?
Selecting between the 2 relies upon fully in your state of affairs. In case you’re managing your EMIs however coping with a number of high-interest money owed, consolidation might supply comfort and value financial savings. In case you’re already lacking funds or nearing default, restructuring may assist stabilize your funds.
“There’s a fantastic line in deciding the appropriate method to debt. You probably have a number of high-interest loans however steady earnings, consolidating them into one lower-rate mortgage can simplify compensation and lower your expenses. Nonetheless, if you happen to’re already unable to pay and default looms, restructuring together with your lender is perhaps the lifeline it’s essential keep afloat,” Shahi concluded.
