Debt consolidation remains one of the most useful ways for millions of people around the world to simplify their loan repayment. When you have multiple loans to repay, it can be quite difficult to remember the dates and manage repayments towards the end of the month. However, debt consolidation is a solid strategy that you can use to pay off your debts in a simplified manner. Rather than worrying about multiple loans and repayment dates, you can pay them all off with one monthly payment. Despite being such a simple method of paying off your loans, there are many myths surrounding the subject of debt consolidation.
Let’s debunk the five most long-standing myths.
Five Debt Consolidation Myths Debunked
Your Debt Magically Reduces with Debt Consolidation
Do you see any such hint in the term “debt consolidation”? Of course not! That’s because your debt is not reduced when you go this route. If consolidation meant reducing the amount of loan you owed then in it would be called debt reduction. However, there is no reduction in the amount of loan that you are going to pay off. However, simplification is definitely there. With this amazing service, you combine all of your different debts into one. You then make only one monthly payment that pays off the total debt you owe. This monthly payment goes to the company that has provided you consolidation services.
If the company you are working with provides any services in which it negotiates with your creditors, it will tell you about it. However, if the company is telling you straightforwardly that it provides debt consolidation then that is what it does. Do not curse your consolidation company just because you expected it to do something that it does not do.
Debt Consolidation Will Lower Your Credit Score
You will hear it from people who have either used the services of some bad companies or they have done things their own way, which ended up being wrong. The fact is that your debit consolidation can affect your credit score negatively or positively. That’s where your consolidation company comes in. The best company will always send an expert financial advisor to you to discuss your options. They will tell you everything that is going to affect you during the process. If you transfer the balance from all your credit cards to one, it might affect your credit score negatively. That’s because your credit utilization reduces by doing that.
However, a personal loan can definitely help you boost your credit score after a few years. You just took out a personal loan and now you are paying off your debts on time. When you are done paying off, it will appear on your credit history as paid off debts.
Debt Consolidation Is Synonymous with Bankruptcy
If someone tells you that consolidating your loans into one loan is synonymous with bankruptcy, they are giving you wrong information. Instead, consolidating your loans is a way of avoiding bankruptcy. When you declare yourself bankrupt, you are telling the creditors that you can’t pay off your loans. If the court orders, all your assets will be sold to pay off the debt that you owe. On the other hand, consolidating loans means that you are willing to pay your creditors the loans they forwarded to you but in a simplified manner. The company you sign up with pays off the loan at once.
However, you pay off that loan in the form of monthly payments. You are still paying off the entire amount of the loan, but in a consolidated manner.
Debt Consolidation Demands Difficult Payment Plans
Again, this is a myth that points out the fact that people are not aware of how consolidation companies work. Some people make opinions based on the little knowledge they have about the industry. Perhaps, they subscribed to the services of a company that was not very faithful to them. In reality, an expert advisor comes to you to discuss your options. You have multiple payment options to choose from. That’s what makes debt consolidation attractive for people. If there were no payments plans, no one would use this service. By talking to the company representatives, you can go with a payment plan that suits your budget and income.
Debt Consolidation Is a Fraud
Yes there are people who have completely and totally called every consolidation company in the world a fraud. This could not be farther from truth. Debt consolidation is a way for financial companies to save people from going bankrupt and completely losing control over their finances. There are many people who want to repay their loans but can’t do so because of the many loans they have to pay each month. All they want is a method that could simplify the entire process for them. Debt consolidation is for these people. Of course, the company providing you this service will charge you something.
You can’t expect these services for free. Even a regular bank loan does not come without a price. At times, the terms you settle for with the debt consolidation company might not seem very favorable too. However, they will almost always be better than repaying multiple loans at different times during a month. Ask people who have taken advantage of these services. They will never say that debt consolidation is a fraud.
It is not difficult to find answers to your questions these days. You have internet that gives you access to unlimited amounts of information. Myths that surround any financial services are often based on lack of information. Yes, good guys and bad guys are everywhere in the world. You will find some bad guys in this industry as well. However, do not let one bad experience change your views about the entire industry. If you research your options thoroughly, you can definitely find a company that makes your life easier by consolidating your loans into one and even working on reducing the amount of loan you have to pay on your overall loan amount.