Debunking the myths involved with debt consolidation
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You may know that debt consolidation is one of your debt relief options. This is the best option if you have several debts and if the interest rate on your debts is high. This debt relief option helps you to reduce the number of debts that you have into one and lower the interest rate on your debt.
You can consolidate your financial obligations on your own or else you can also get the help of a debt consolidation company. But, before you opt for debt consolidation or bill consolidation, it is better for you to know and understand the myths involved with debt consolidation.
Debunking the myths
There are many myths associated with the benefits of debt consolidation.
The myths that are associated with debt consolidation are:
1. Debt consolidation reduces the debt amount – Many people believe that debt consolidation reduces the amount of your outstanding debt. But this is not true. The consolidation process actually reduces the number of debts that you have because it consolidates the several debts that you have. It groups together the several unsecured debts that you have as one debt, thereby making it easier for you to make the debt payments.
2. Debt consolidation and settlement is same – Many people believe that debt consolidation and settlement are the two same processes. In case of debt settlement the outstanding debt amount lowers by 40-50% in general and in case of consolidation, the interest rate on your debt lowers. As the interest rate lowers, the amount that you are required to pay each month against the consolidated debt lowers too.
3. Debt consolidation hurts credit score – This is not true as unlike debt settlement, you are not required to miss payments on your debt accounts before consolidating your bills. Moreover, as you make payments through the consolidation process, your credit improves.
This is because your payment history is the most important thing that is taken into account in order to calculate your credit score. But, yes if you close down accounts after consolidation, the credit limit lowers and your credit usage increases. Thus, your credit can be hurt. So, it is best for you to avoid closing all accounts at the same time.
4. Debt consolidation cannot be done on your own – Another myth associated with consolidation is that consolidation of your unsecured debts cannot be achieved on your own. But this is a completely wrong idea as you can negotiate with your creditors and consolidate your debts on your own trough balance transfer or by taking out consolidation loans.
5. Debt consolidation is helpful only for a homeowner – Many also believe that bet consolidation requires you to be a homeowner as only then you may be able to eta mortgage (secured debt consolidation loan). But this is not true as there are other options too through which you will be able to consolidate your bills. You can do balance transfer or else you can also try to get a secured loan in order to consolidate the bills.
6. Debt consolidation always saves you money – In debt consolidation, the interest rate lowers and thus it becomes quite obvious that you will be able to save money. But this is only a myth because not all make payments in the same way.
For example, if you make more than minimum payments on your consolidated debt, you may be able to save money but if you make only minimum payments on your consolidated debt, you will end up paying more on the interest.
Another very common myth associated with debt consolidation is that the debt consolidation loans are easily available. But this is not true and you will have to go through the same process of getting any other loans for your personal matters such as for your home or your car.
