Myths about Debt Consolidation

Individuals become mired in credit card debt because they overspend and, probably, because they didn’t have a budget to work with every month. Once in debt, they are not sure what to do. One thing is for sure, people in credit card debt should acquaint themselves with the myths regarding debt consolidation. The following should help clear up some of the mysterious and questions concerning debt consolidation.

There’s no difference between credit counseling and debt management programs: That’s simply not true. A debt management program is one device a credit counselor can recommend to a client. Credit counseling revolves around educating people on personal finances, budgeting and how to control their spending habits. A debt management program takes a lump sum of money from the person in credit card debt and pays off their monthly bills. Once all the creditors are paid off the accounts are closed.

Credit counselors can lower monthly payments through debt consolidation: They can lower the monthly payment a person has to shell out but the payments will probably take place over a longer period of time. When a person owes, say $15,000, then that is what they will be paying off. There is no magical debt reduction, and they will be paying interest each month. Sometimes the lower monthly payment makes it affordable to the person in credit card debt. That allows them to make the payments and not go into further debt or into bankruptcy.

Debt management program payments vary: Not usually. Credit counselors negotiate the payment with the creditors and then that’s it, there is no more negotiation. Although, the payment will probably be lower than what the person would be paying without the debt management program.

Debt settlement programs and debt management programs are the same: No. Most experts in the debt consolidation field will tell a person to steer clear of debt settlement companies. Many of them keep a person’s money in an account and don’t make the monthly payments. The creditors finally give up trying to collect and then the person is headed for bankruptcy. And if a person misses a payment to the debt settlement company, they keep the total that has been collected as a penalty fee. A person’s credit score and history can also be damaged because of all the letters and phone calls that are not answered.

Debt settlement programs and debt management programs are the same: No. Most experts in the debt consolidation field will tell a person to steer clear of debt settlement companies. Many of them keep a person’s money in an account and don’t make the monthly payments. The creditors finally give up trying to collect and then the person is headed for bankruptcy. And if a person misses a payment to the debt settlement company, they keep the total that has been collected as a penalty fee. A person’s credit score and history can also be damaged because of all the letters and phone calls that are not answered.

Credit Scores are not harmed by debt management programs: They most certainly will be harmed if a person has no flaws in their credit history. But if they already made past mistakes, late payments for example, then a debt management plan program won’t hurt. Some creditors even look kindly on it this type of debt consolidation because it shows that the person is making an effort to get out of credit card debt.

Bankruptcy is not a bad idea: Only in the most severe case. If a person makes $25,000 a year and has a total of $60,000 in debt then they really have no other alternative. Remember, filing Chapter 7 bankruptcy (this wipes out all debt) stays on your credit history for 10 years. Chapter 13 bankruptcy (reorganize your debt) sticks with you for seven years, starting at the time you finish paying off the debt.

After all is said and done, it is up to the individual to get themselves out of credit card debt. A credit counseling agency can help by educating the person on budgeting and spending or they can go the debt management program route. But if they don’t change their spending habits, no program or amount of financial education will save them from drowning in credit card debt.

If you’re not sure if debt consolidation is right for you, contact Consolidated Credit Counseling Services by calling 1-800-320-9929 and discuss your personal finances with a certified credit counselor. They will listen to your situation and advise the best way to pay off your credit card debt.