Myths about Debt Consolidation
Without a doubt, finances are one of the most intimidating and confusing things most of us have to deal with. Contracts are complex, things can vary from state to state and, even worse, you have different people telling you different things that don’t seem to fit together in one cohesive picture. So how do you know what’s really true and what’s really going to be the best decision for your finances?
A certified credit counselor is an expert in breaking down the complex world of finance and taking the mystery out of making important decisions for your future. Give us a call at 1-800-320-9929 to speak with a certified credit counselor today and get a little clarity in dealing with your debt problems. You also have the option of getting started online with a Free Debt Analysis.
Myth #1: Debt Consolidation is the Same Thing as Debt Settlement
This is a common misconception that could potentially cost you improving your financial situation as well as improving your credit rating.
- With debt consolidation you pay back everything you owe in-full. Interest rates are adjusted on your debt with the goal that this adjustment can reduce your monthly payments to make your debt more workable within your budget.
- With debt settlement you only pay back a portion of what you owe—i.e. you settle the debt with your creditor for less than the full amount. Any debt settlement causes a 7-year penalty on your credit report, which can hinder how fast you can achieve any plans you have in your financial future.
Myth #2: You Can’t Consolidate Debt with Bad Credit
While some debt consolidation options require you to have a strong credit rating in order to get a real benefit from consolidating, a debt management program is a type of debt consolidation you can use even with bad credit and poor credit scores. If you have bad credit and you want to consolidate your debt to improve your financial situation, we may be able to help. Give us a call at 1-800-320-9929 to speak with a certified credit counselor. He or she can assess your finances and help you determine if a debt management program can help you find relief.
Myth #3: Debt Consolidation Causes Credit Penalties and/or Damages Your Credit
Neither of the debt consolidation options (consolidation loans or debt management programs) causes a credit penalty. Credit penalties occur when you don’t pay your debts back on time and in full. Debt consolidation adjusts your payment schedule, but as long as you pay on time according to that schedule, you won’t get penalized on your credit report. In fact, if you pay off your debts in-full on your consolidation plan, you may actually see an improvement in your credit score because you built a positive credit history and reduce your total debt owed.
Myth #4: Debt Consolidation Means You’ll be in Debt Longer
It’s easy to think this would be true, since the goal of debt consolidation is to reduce your monthly payments. However, many people find they’re free of debt faster with debt consolidation than they would be paying back their debts in a traditional way. This works because of the way debt consolidation reduces your interest rates.
If you reduce the interest rate on your debt, it doesn’t grow as fast with accumulated interest. In addition, your debt consolidation plan will typically have you paying your debts off more efficiently than the minimum payment schedules set out by your creditors. Both of these factors contribute to reducing your monthly payments, but still allow you to pay back your debts faster than you could on a minimum payment schedule. You can actually reduce the time it takes to pay back your debts by years or, in some cases, even decades.