Common Debt Consolidation Myths

Nowadays, more and more people are struggling with making their debt payments for their credit card bills and loans. The sad thing is, they work hard, get their paycheck, and spend most of what they earn to pay their debts. Sometimes, there is not enough left from their salary, yet there are still so many debts that remain unpaid!

If you find yourself in this kind of situation with debts going out of control, it helps to find an effective solution to this problem. For instance, debt consolidation offers a means for you to slowly free yourself from this nightmare. However, there are so many false ideas about it, which tend to confuse people. Here, these common debt consolidation myths are debunked, and we reveal the truth about each.

You can reduce your debts by consolidation.

Naturally, debt consolidation does not work as a way to lower the amount you owe, whether it is your loans or credit card bills. However, you can minimize interest fees including penalties for making payments after the deadline through debt consolidation. This way, you do not have to worry about these additional expenses that can be a real pain to anyone.

Your credit score improves right away when you consolidate debts.

The entire process of debt consolidation requires you to take out a new loan, which comes at a lower interest. Then, this should cover all your existing debts along the way. One thing you have to remember, though, is consolidating debts can have a slight negative impact on your credit score. Although it may not sound appealing at first, you will find this process helpful in paying off all your debts efficiently – and at a faster rate. As you make timely payments on your loan (this time with lower interest rate), your credit score also improves.

Only those with good credit can consolidate their debts.

For sure, this is nothing but a myth. After all, the main reason why people opt for debt consolidation is to reduce the interest rate on their loan. While you may find it hard to take out an unsecure loan with a bad credit, you can get a secured loan by using any property you may have as the collateral. Just make it a point to study all the consequences involved when getting a Home Equity Line of Credit.

Advanced fees are needed in debt consolidation to guarantee your loan.

Be aware that there is no such thing as pre-paying a company to guarantee your loan. The FTC has released warnings to customers that it is never possible for a company to offer such guarantee. The fees you need to pay come after taking out the loan – and not before.

There is a fixed interest rate on consolidation loans.

Regardless of the loan you use for debt consolidation (unsecured loans, HELOC, and so on), always read and understand the fine print. Low interest rates are usually fixed for only two years. There are also factors that can change your interest rates, and lower-rate period should be the best time to pay off your debts, or at least most of it.