All you need to know about debt consolidation loans

In an interview to CNBC-TV18, personal finance expert, Pankaj Mathpal of Optima Money Managers shared his reading and outlook on debt consolidation and term plan.

Also Read: Is IRDA's new insurance policy guideline helpful? Below is the verbatim transcript of Mathpal's interview with CNBC-TV18. Q: Debt consolidation loans are in the market but haven't really picked up in India. Do you think it is a good time for someone to follow the principles especially if it is for a number of credit cards? What is the process and what kind of interest do you think is charged? A: Debt consolidation is really a good idea because when one has multiple loans one is repaying equated monthly installments (EMIs) for those loans and serving different loans at the same time becomes very difficult especially when he has credit cards outstanding where he is paying around 40 percent annual return. Therefore, it is better to opt for consolidation plan. However, as a product in unsecured loan market, that is not available so one can just compare the rates of personal loan and go for a personal loan instead of credit card outstanding. So, according to the total outstanding and other loans, apply for a single personal loan so at least he will get 10-20 percent difference in rate of interest compared to credit card outstanding interest. Second, if one has any freehold property then the best idea is to go for loan against that property. Banks offer the facility to consolidate loan and take a loan against property, which is available at much lower interest rates. So, in that case whatever personal loans, credit card outstanding and multiple loans are, combining those together to the extent of that property’s value one can go for that and the term will be longer. Therefore, when the term of loan is longer, EMI will be lower, which will be easier to pay. So, it is a good idea, you should see these options, either personal loan is one choice or otherwise if some property is available, which is freehold where the loan can be raised on that property, should be considered. _PAGEBREAK_ Caller Q: I want to invest Rs 15,000-20,000 annually in a term plan. My monthly salary is Rs 25,000. Please guide me through different companies offering term plans as well as the minimum premium in each. I want to insure myself for Rs 25 lakh? A: First of all you should know that there is no maturity benefit in term insurance plan and god forbid is some kind of accident happens and if a person loses his life so it is a life insurance in that case to protect family income in case of untimely death of breadwinner, this type of insurance plans are offered. So, when you are considering Rs 25 lakh, I will suggest you to go for a bigger sum assured because the difference between that premium for Rs 25 lakh and Rs 50 lakh is not much. However, your age will keep on increasing and then it becomes difficult to take additional sum assured, additional death benefit for these types of insurance policies. So, I would suggest you to go for Rs 50 lakh instead of Rs 25 lakh because AEGON Religare iTerm Plan is available at Rs 6,787, which is a online plan and Bharti AXA Term Plan is available at Rs 5,843 also you have choice to buy HDFC Life Click 2 Protect for Rs 50 lakh at your age of 35, it will be available for Rs 8,034. So, if you are considering Rs 25 lakh, the difference will be Rs 500 to Rs 1,000. Therefore, my suggestion is that you go for Rs 50 lakh sum assured for your term insurance policy and go for online term plan.