What Is Debt Consolidation & When Is It a Good Idea?

15 JULY, 2025

Many working professionals in India depend on personal loans to manage their financial needs. Are you one of them sitting on top of a long stack of personal loans, EMIs, and credit card debts?

Well, you can opt for personal loans for debt consolidation, where you can combine and settle several credit card debts and personal loans in one go. This way, you save on multiple high interest rates.

Types of Debt Consolidation Options in India

Personal Loans

It is one of the most popular ways to pay off multiple debts together. The best thing about personal loans is that you don’t have to pledge any collateral. Many people opt for this to pay off their short-term high-interest loans as they comparatively have lower interest rates and flexibility.

Balance Transfer Credit Cards

If you have several Credit Cards, your debt burden is increasing. You can opt to transfer all your Credit Card debts to a single card. Kotak Mahindra Bank offer interesting introductory offers with low interest rates. This helps you pay off your balance, or as much of it as you can, as soon as possible with a debt consolidation loan.

For example:

An individual has 3 credit card debts:

Rs. 1,00,000 at 16% interest

Rs. 50,000 at 20% interest

Rs. 75,000 at 21% interest

The total annual interest paid on these credit card debts amounts to Rs. 41,750.

If you take a 1-year personal loan for debt consolidation at 10.99% interest, the total debt will be Rs. 2,25,000 and the interest will be Rs. 24,727 in a year. They will save over Rs. 17,022 annually.

When Should You Opt for a Debt Consolidation Loan?

Opting for this type of loan must be a calculated step in your financial planning process. Taking a new loan at high – interest rates and various processing fees just to pay off multiple loans will trap you in an endless loop of debts. Let’s take a look at some cases in which this loan is helpful:

Multiple High-Interest Debts: When you have many high-interest loans, it becomes difficult to manage them. Consolidating these can simplify your financial constraints and reduce interest costs.
Tracking Payments: Keeping a constant track of several due dates can be a herculean task. In this, you must only look at one date.
Improves Credit Score: Personal loans for debt consolidation help you pay multiple debts which in turn helps you improve your credit score.
Stable Income: Having a steady income ensures that you can follow the new repayment schedule without defaulting.

Risks and Considerations For Debt Consolidation

Debt consolidation can pose a risk for the following factors:

Long Loan Tenures

It is crucial to closely analyse the loan tenure of your debt consolidation plan. Your monthly payments will decrease but if the tenure is long, you will pay more interest over time.

Associate Fees

There are several other fees that are mandatory. Hence, it is important to check what are the processing fees, prepayment penalties, and other charges applicable before you opt for the loan.

Collateral Requirement

If the debt consolidation loan is a secured loan, it puts your assets at risk if you don’t repay your loan on time. Hence, you must assess your assets and finances before opting for a secured loan in such cases.

How does it impact your credit score?

Lenders run a hard inquiry when you apply for a Personal Loan or do an online balance transfer for your Credit Cards. This will dip your credit scores slightly and it might be reflected before the debt consolidation process.
On the other hand, it lowers your account’s average credit age which further lowers your credit score.
When you take a new loan, your available credit increases but decreases your credit utilization ratio. Having a low ratio can negatively impact your account.

However, with regular repayments, you will see a boost in your credit score. This shows that you always meet your payment deadlines.

How to apply for a Debt Consolidation Loan?

Apply for a Personal Loan for Debt Consolidation with Kotak Mahindra Bank at low interest rates for up to Rs. 35 lakhs. Additionally, Kotak Mahindra Bank has flexible repayment tenure options ranging from 1 to 6 years. With this, you can choose an EMI plan that is best for your financial plan.

The process for applying is simple and you can complete it online via the Kotak Mahindra Bank website or mobile app.

Conclusion

Consolidating your debts improves your financial planning. In this way, you are able to pay off high-interest loans and manage various debts together. However, you must also thoroughly analyse various risks like loan tenures, associated personal loan interest rate and fees to see how it will impact your credit score.

T&C apply. Credit at the sole discretion of Kotak Mahindra Bank Ltd. and subject to guidelines issued by RBI from time to time. Bank may engage the services of marketing agents for the purpose of sourcing loan assets.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.

When Should You Consider Debt Consolidation? – All You Need To Know

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