Ravi is a 35-year-old from Delhi whose life was somewhat spoiled by miserable credit card debts. He had three cards with an interest rate as high as 30%. He consolidated his debts into one loan at a lowered interest rate of 15%. It appeared to be a good option initially. But six months down the line, it became revealed that Ravi was in trouble once again.
Due to missing certain steps in the whole process of debt consolidation, he ended up getting some added extra debt into his credit cards. Combining more debt together under one shelter is what debt consolidation means. It makes payments easier and likely to save on the interests being charged.
What Is Debt Consolidation?
Debt Consolidation is basically getting several loans and finally converting them towards one loan. For example, if you have three credit cards, and they take a total of ₹2,00,000, you can consolidate them. Rather than three separate bills, you will pay one. Taking a new loan at a lesser interest rate means saving a significant amount. It will work only when you keep your expenses limited.
Common Pitfalls to Avoid
1. Ignoring the Root Cause of Debt
Debt consolidation doesn’t solve the real problem. It only simplifies payments. If the spending habits do not change, the debt will increase.
For example, Ravi never tracked his expenses or ever made a budget. Even after consolidating his debt, he soon added ₹50,000 more to his credit card bills.
2. Not Researching Your Options
There are various ways to consolidate debts, such as personal loans, balance transfers, and home equity loans. Each option carries different terms and interest and costs associated with each. If the wrong option is selected, then an extra burden of expense is sure to be there.
For example, if you consolidate ₹3,00,000 using a balance transfer with a 2% fee, you’ll pay ₹6,000 as a fee. A personal loan without any charges could save you that amount.
| Method | Interest Rate | Fees | Best For |
| Balance Transfer | 0% (promo period) | 1–3% transfer fee | Short-term repayment |
| Personal Loan | 10–15% | Minimal fees | Long-term repayment |
| Home Equity Loan | 6–9% | Origination fees | Homeowners with equity |
3. Consolidating the Wrong Debts
Some debts should never be consolidated. For example, low interest student loans and combining them with high interest credit card debt that may end up costing you more in the end.
4. Overlooking Fees and Terms
Generally, the loans form to cover debt consolidation are also charged extra. It includes origination fees, balance transfer fees, or prepayment penalties. Ignoring these can reduce your savings.
For instance, consolidating ₹5,00,000 is cost for an upfront amount of ₹10,000 with a 2% fee. This lowers the financial benefit of the new loan.
5. Continuing to Use Credit Cards
Many people keep using their credit cards after consolidation. This adds more debt on top of the consolidated loan.
6. Failing to Set Clear Financial Goals
Debt consolidation is only helpful if paired with clear repayment goals. Without goals, it’s easy to lose focus.
7. Choosing the Wrong Professional Help
Some people hire professionals for debt advice. But not all advisors are trustworthy. Some charge high fees or suggest risky loans.
Conclusion
Debt consolidation makes it simple to manage your finances and often reduces interest rates. Focus on the cause of your debt, fully explore every option, and do not create new debts. Ravi’s debt story teaches us that it is discipline that matters. It is said that with the right budget, while having perfectly clear goals. You could allow debt consolidation to take you financially free. Stay focused and you’ll find the way never to fall into the same traps again.
