Some Misconceptions about Debt Consolidation
Debt consolidation is recommended if you are really in a distressing situation thanks to the ever mounting debts. Debt consolidation is the combining or consolidating of several debts into one single new loan or program. Debt consolidation could be a great way of not only getting your debts under control but also paying off the debt using effective debt consolidation programs.
Purpose behind Using Debt Consolidation
There are two main purposes of the debt consolidation process:
- It helps in making your monthly payments a lot easier to handle by combining or consolidating multiple loans into just one single loan.
- It ultimately helps to reduce your monthly payments simply by offering you a lower interest loan.
Misconceptions Related to Debt Consolidation
Certain misconceptions or myths are associated with debt consolidation. It is important for you to be aware of them.
Misconception 1: Debt Consolidation Is Nothing but a Scam
Debt consolidation may involve scams. It really pays to remember that debt consolidation programs universally do not save money for you. But there are renowned and reliable firms that offer best debt consolidation loans that can really ease your financial distress and lower monthly payments to a certain extent so that you have enough money for meeting your day to day expenses. Remember that debt consolidation could prove to be an effective tool in the correct situation and it could provide some financial benefits in case you opt for a good loan provided by a low-rate lender.
Misconception 2: Credit Counseling & Debt Consolidation Are One and The Same Thing
Often people seem to get confused between credit counseling and debt consolidation as these two terms are mentioned and used mostly in the very same context. But credit counseling and debt consolidation are two absolutely different concepts. Credit counseling is all about counseling individuals with financial issues. The credit counselor could be providing a debt management plan, budgeting advice and would be negotiating with creditors requesting for lower rates. Thus they would be responsible for paying off your bills
Misconception 3: Debt Consolidation Would Adversely Affect My Credit Score
Debt consolidation loans may be used for paying off multiple debts, but that should not remarkably or adversely affect your credit score. By consolidating your debts into a single new loan you end up opening just one new credit line and that should not alter your credit score immensely. Your credit score is impacted mostly if you are not able to make the required monthly payments on that and on any other pending loans on time. In fact, sometimes debt consolidation could enhance your credit scores.
Misconception 4: Debt Consolidation Ends Up In More Debt
Debt consolidation is nothing but taking one new loan for paying off a bunch of pending loans. So if you have agreed on good terms in case of your new loan, there does not seem to be any worry about debt consolidation culminating in more debts. Debt consolidation in reality may result in lower total debt. However, in case of some individuals who do not really care to rectify their habits, it would certainly lead to more debts. To avoid getting into more debt, avoid using the credit cards as much as possible.
Misconception 5: Bankruptcy Is Bound to Ruin Your Life
A proficient credit counselor would recommend bankruptcy to you only when the situation demands it and surely it is the last resort. Declaring bankruptcy is definitely a lot better alternative than living with no shelter and food for nourishment. Often people go on borrowing money from friends and relatives to fulfill basic needs of everyday living. For them bankruptcy is the only solution to get out of this financial mess. Your credit profile would be impacted by filing bankruptcy, but there is certainly life after bankruptcy.