There are many reasons why you should consider using a debt consolidation loan, they can help when you have too many debts and you can reduce the payments and the overall costs of the credit. But be warned there are many myths of debt consolidation that you really need to know and understand.
Credit Counsellors Reducing Debt
There are many different lines to the same myth and they all surround the premises that the credit counsellor will reduce the amount of the debt that you owe. This is not the case they will look to see if they can get a reduction in the interest rate that you are paying and if there are any late payment fees attached to the account, but they will not reduce the amount of money that you owe. You will pay back all the money that you borrowed, the reduction in payments is due to the lower amount of interest that is being charged by the creditors and this will reduce the monthly payments.
Lower Priced Debt Management Plans
There is a myth of debt consolidation that implies that one company can get a better rate reduction than another. The amounts will vary and this is due to the personal circumstances of the person who has the debt. The lower payments could be related to a lower premium that is being charged for a service than other debt management companies.
If the company is suggesting that they can get a reduction in the amount of the overall debt that you need to pay this isn’t debt management but debt settlement, it is where the company offers a figure for the total amount of the debt that they are willing to pay and this does mean that a proportion of the debt is wiped away. But be warned the tax man sees this as income and you will need to pay tax on any of the money that is wiped off the debt.
Debt Management and Credit Counselling Are the Same
It is important that you understand that this is a myth of debt consolidation these are two totally different services, you might find that the counselling service has both options but they are completely different. Credit counselling looks at the problem as a whole and links the reasons why you have built up the debt and looks at ways in which in future you do not make the same financial errors.
The Cheapest Way to Remove Debt Is Debt Settlement
In overall terms it can be the quickest option and in trueness the debt is reduced, but there are negative consequences for this type of debt recovery. It will mean that whilst the company is negotiating a settlement the debt is increasing and the bad credit on your credit file is increasing and this can lead to serious damage for a number of years. You will also need to pay the debt settlement company and their charges can be very steep, so charge you a percentage of the amount that they managed to reduce the debt by others look at the overall debt and charge a percentage of this. Whatever option they use it won’t be cheap.
You Need a Company to Get Out Of Debt
This is completely a myth of debt consolidation you don’t need anyone’s help to get out of debt. It is possible that you are able to get yourself out of the situation where you find that your bills are taking over. It will take commitment and a lot of hard work in creating a budget that will work, but it is possible and not something that you should dismiss.
What you will need is:
- List of debts
- The interest that you are paying on those debts
- Budget that will work
Debt Consolidation Will Save You Money
It is important to look at the interest rates that are being offered it is possible that it might cost you more in the long run than what you are paying at present. This is why it is so important that you consider getting all the information about the interest rates that you are paying and the time frame that you have left. It is possible that you are offered a loan with lower monthly payments and you think you have a great deal only to find that the loan is spread over more months.
Bankruptcy Ruins Your Life
There are times when the only option that you have left is bankruptcy, it won’t ruin your life, you will still be able to continue to live and move forward with your life, it will just be more difficult to get credit and financial products. It can have a negative impact on your job prospects and obviously it will be on your credit file for 7 – 10 years. You might even be able to still get credit, it will be at higher interest rate.