In short
Three ways people try to handle heavy debt. They suit very different situations.
Balance transfer
- What it is: move a loan or card dues to another lender at a lower rate.
- Who can get it: people with a good repayment record.
- Credit report: the old account is closed normally.
- Main risk: fees, and running up the old card again.
Debt consolidation loan
- What it is: one new loan to pay off many old ones.
- Who can get it: people with steady income and a fair credit score.
- Credit report: old accounts are closed normally.
- Main risk: taking on a longer or costlier loan.
Loan settlement
- What it is: the lender accepts less than the full dues and marks the account settled.
- Who can get it: people in real hardship who cannot repay in full.
- Credit report: the account shows "settled".
- Main risk: harder to borrow later, and the lender may say no.
How to choose
- Choose this if… you still pay on time but the rate is high: balance transfer.
- Choose this if… you have many EMIs and a steady income: a consolidation loan, but only if the total cost is lower.
- Choose this if… you have missed many EMIs and your income has gone: settlement may be one option. Ask about restructuring first.
If you're still paying on time but the interest hurts, ask about a balance transfer.
Always compare the total cost, not just the EMI. Read the Key Fact Statement of any new loan.
Related: Restructuring vs settlement · Debt support
Real situations
Example: say you pay every card bill on time but the interest on ₹1.2 lakh is hurting. (Made-up figures.) A balance transfer to a lower rate may cut cost, if the fees don't cancel it out and you stop using the old card.
Example: say you have five EMIs from three lenders and a steady salary. One consolidation loan can simplify payments, but only helps if the total interest over the new tenure is lower.
Example: say your income stopped six months ago and you have missed several EMIs. A new lender is unlikely to approve a transfer or consolidation; asking your lender about restructuring, and then loan settlement, may be the realistic route.
What each option does to your credit report
Credit-report effects differ:
- Balance transfer and consolidation: old accounts close as paid; the new loan is reported normally.
- Loan settlement: the account is usually reported as "settled". It does not improve your score.
Questions to ask before choosing
Before you pick a path:
- What is the total I'll pay, including fees and the full tenure?
- Can I keep paying on time after the change?
- If I'm considering settlement, have I asked about a lower EMI or restructuring first? See restructuring vs settlement.
- Have I read the Key Fact Statement of any new loan?
Sources
Frequently Asked Questions
Which option fits if I still pay on time but the rate is high?
A balance transfer, if you have a good repayment record.
How does each option show on my credit report?
With a balance transfer or consolidation loan the old accounts are closed normally. A settled account shows "settled".