Debt consolidation is really a highly ethical, trustworthy way to manage specific kinds of debts, but many people do not know a lot about it. Even worse yet, a lot of individuals who may benefit from debt consolidation lack a comprehensive knowledge of its functioning and possible advantages. Ten common misconceptions regarding what debt consolidation is as well as is not!
If perhaps you're a cash - strapped individual facing mounting debt,Guest Posting you might have heard the phrase debt consolidation tossed around. You might have actually considered it. But what you do not know is the fact that you might not comprehend it.
Debt consolidation is probably the most valuable and poorly understood of all of the financial plans offered to individuals fighting overwhelming debt. A few of these common misunderstandings regarding debt consolidation might already be true for you. Find out the truth!
Myth # 1 debt consolidation is the exact same or very much like Debt management, Debt settlement and bankruptcy.
Truth Debt consolidation is nothing like those other programs. It is actually more of a strategic approach instead of a "program" (you are able to get it done yourself if you have adequate knowledge).
The procedure for debt consolidation consists of merging all your debts and repackaging them. The goal of debt settlement and debt management is normally to negotiate with a business or counselor to bring down your debt. A date with a judge is necessary for bankruptcy, which is a legal action.
Myth # 2 debt consolidation decreases your Debt.
Truth No it doesn't. For those who have several credit card and loan debts totaling USD 80,000 and you consolidate them all, you still owe USD 80,000.
Debt consolidation doesn't negotiate, settle, write off or decrease any of your bills. What possible advantage is re-organizing your debt that way?
For those who have a great deal of loans at high interest rates, repackaging those higher-interest debts into one bigger loan at a reduced rate decreases your interest and also the amount you have to pay. This means you can either pay much less a month or even (better still) pay the same amount but get the debt paid off quicker.
Myth #3 Debt consolidation will harm my credit report.
Truth Done appropriately, debt consolidation will not influence your credit rating or credit report adversely. Debt consolidation may even improve your credit rating! That is because you will be repaying a bunch of smaller loans and any time a loan is paid in full, that will help your credit score.
Myth # 4 Debt consolidation demands the aid of an outside company or a lawyer.
Truth While there are businesses and counselors in the marketplace who'll help you consolidate your debt or even enroll you in a debt consolidation plan, you are able to also consolidate debt by yourself.
If you intend to consolidate your debt on your own, you have to first be acquainted with the process as well as available options. But it can definitely be a do-it-yourself project for individuals great with cash (or that are prepared to learn enough to get great with money).
Debt consolidation is also not necessarily apparent to outsiders. The credit bureau and other parties might not be aware that you have consolidated debt.
Myth # 5 Debt consolidation is only for financial losers and lightweights, not for individuals that possess financial management abilities.
Truth This is probably the most far out myth regarding debt consolidation. The idea of debt consolidation is a very common practice in business and among the super rich. It is a technique of arranging and structuring your debts in a manner that's most helpful to you.
Myth #6 Debt consolidation is simply robbing Peter to pay Paul; you are just getting more debt!
Truth debt consolidation is a technique of paying off one Debt by obtaining an additional one. Nonetheless, not all debts are produced equally.
Let's imagine you owe USD 10,000 and the loan specifies you pay 22 % interest. Let's imagine I visit my credit union and negotiate a loan agreement to borrow USD 10,000 at 12 % interest. Although both debts continue to be in the amount of USD 10,000, the debt at 12 % interest is a better deal for me. I will not need to pay as much monthly or I can pay it off sooner if I make the largest payments possible.
Myth # 7 Debt consolidation calls for you own a home.
Truth this is partly true: Having a home is definitely an advantage for all those seeking debt consolidation. (It does not matter much whether your home is paid out for or not, but you do need some home equity.) However you are able to consolidate debt whether or not you own a house.
Myth # 8 Debt consolidation will make it tougher for me to obtain future loans.
Truth In many instances, it is not likely anybody but a forensic accountant could discover that you consolidated your debt (unless you go by way of a debt consolidation companythat may make a paper trail).
If you take out one loan and then take out another, much more advantageous loan to repay the very first one, you're more likely to leave a record of a responsible debt payoff. You're much more apt to become a desirable creditor due to it.
Myth #9 People who consolidate debt simply wind up digging themselves in much deeper in debt!
Truth You are able to certainly consolidate your debt and continue spending resulting in a huge mess. That is why you need good information and a plan to pay off your existing debt, handle your finances now, and begin planning for your financial future.
Debt consolidation will help you eliminate your debt permanently - there's no reason why it shouldn't be considered - but you have to have a method in place first.
Myth # 10 Debt consolidation will enable me to pay off a few of my debts and also deter bill collectors from calling.
Truth Let's take these one at a time.
Unlike bankruptcy, debt consolidation will not enable you to write off of any of your debtnot a penny of it. Whatever you owed as a debt before debt consolidation will be the amount you will owe following debt consolidation.
People consolidate debt as the new loan is structured more favourably compared to the prior ones. You do not get present debts terminated or even decreased! Now it is true you can work that out in other debt management solutions (debt settlement enables you to reduce debt, bankruptcy will allow you to write some debt off) however they come at a really high price. These two methods will adversely affect your credit score, make it much more challenging to secure future loans, and remain on your record for a considerable period of time. The extreme solution of bankruptcy is a court process and a judge who could make some financial choices (such as compel you to sell specific things paying off debts).
Debt consolidation is only able to stop bill collectors indirectly. Here is how: Imagine you have six debts and you receive constant calls. Consolidating your 6 debts in one big debt consolidation loan with better terms will result in the payment of all those bills. Bill collectors, bye bye!
If you don't repay your new debt consolidation loan promptly, the bill collectors will call you again.