In a few words it can be said that debt consolidation is very useful to manage multiple loans. The process is simple much to the contrary of the common belief. There are also a few other misconceptions that people do have about debt consolidation loans primarily for the term ‘loan’ in the end of it. Most people think it is just another loan that should be avoided.
However, you must come out of these preconceived ideas about the process and what you can accomplish, which are mostly wrong, if you are considering taking advantage of a debt consolidation loan. This will help you to know about this specific and useful formof managing debt, what it can do and what it cannot for you and at the same time separate the facts of a debt consolidation from fiction.
The common myths
You may come across a lot of people who may misguide you regarding taking out a debt consolidation loan. These people believe in the myths that are prevalent in the market regarding debt consolidation.
Myth 1: Few people believe that a debt consolidation loan is same as debt settlement. The truth is that debt consolidation and debt settlement are two entirely different concepts.
- Debt consolidation featuresconsolidation of your multiple debts into one loan that is low in interestrate but debt settlement involves paying back your loan or loans less than the actual amount that you owe
- Debt settlement will affect your credit report as the fact that some of your debt is forgiven and that you received a debt settlement will be recorded as a negative. On the other hand, a debt consolidation loan will not affect your credit standing.
Myth 2: Most of the people believe that taking on a debt consolidation loan will save a lot of money which is once again untrue.
- In debt consolidation your bills are not forgiven and therefore it does not save you any money when you consider the total amount that you owe.
- It rolls your multiple debts into one without making any change in the loan amount. However, as the rates of interest of such loans are relatively low as compared with all interest rates of all your loans, you may indirectly save money in the form of interest.
Moreover, you will no longer forkout late charges due to missed payments like before now having to repay only a single bill every month.
Myth 3: There are quite a number of people who believe that a debt consolidation loan is always a far better option than bankruptcy and misguide you during the process with such belief. Though debt consolidation may be a good thing to choose for most of the people struggling to manage their multiple debts, for those individuals who are in dire and desperate need of some kind of financial relief may find bankruptcy as the best option often.
Therefore, when you consider hiring a debt consolidation company, be wary of those companies that only offer debt consolidation without ruling out the bankruptcy option as well. The best way to approach is by following the debt consolidation ratingsof the company you wish to hire.
Myth 4: People also will coax you not to take out a debt consolidation loan saying that it will not help come out of your debt fast. They will say that when you convert all your multiple debts of smaller amounts into one big payment, it will take a lot more time to pay it off.
- However, the truth is that there are lots of problems in continuing to pay off multiple debts. You may lose track of one or a couple and miss on a payment thereby resulting in interest accrual and late fees.
- Most importantly, taking out a debt consolidation loan will result in reduction in rate of interest and therefore you will actually end up paying off more of the outstanding debts each month as compared to what you may have done if you had several loans.
Therefore, in a nutshell, debt consolidation can help you like it has helped many others to get out of your debts fast and gain control over your personal finance. Since you will be better informed about your loan status, you will begin to stabilize your financial health and manage your debt in a better manner.
Know the methods
Knowing about the working process and how each type of debt consolidation may fair for you will help you to make the decision that is best suited for you.
- First, review all recent statements for each of the debts, especially those that you are worried about the most. It may be your student loans, medical bills, credit card bills, car payments loans or any other or all of it.
- Then, make sure that you have the outstanding balance, your monthly payment amount, rate of interest, and contact information of the lender clearly recorded in a statement.
- Once you are over with that, find out whether or not you are eligible for azerointerest balance transfers. Many credit card companies offer such possibilities to their consumers. This will allow you to do away with a huge amount of credit card interest which is ideally thehighest of allvery quickly and easily.
- Then, start with the loans carrying highest interest rates and contact the lenders to find a way to negotiate and reduce the rate or waive some of your amount explaining the difficult situation that you are in at present.
Finally, you can consider mortgage financing or a home equity loan provided you have a good credit score and a partially paid-off mortgage.In the end, you will find that making a decision is easy and with this process you will gain the desired benefits and results of debt consolidation program without having to pay the cost of it. The money will stayin your pocket and even better will gotoward paying down your multiple outstanding debts even faster. Listen to your gut rather than giving in to the misconceptions of other people.