If your debt is affecting your life and proving to be immensely stressful, you must be having a share in the $4 trillion phenomenal American consumer debt in 2019. You must be finding it really overwhelming and frustrating to juggle multiple debts. The best way to tackle multiple debts or overpowering credit card debt is to opt for debt consolidation. It could help in simplifying your payments easily by rolling several existing debts into just one single one with a lower rate of interest. It would be assisting you in eliminating your debts faster too. However, debt consolidation comes with some myths or misconceptions that must be debunked so that you are aware of the truths associated with debt consolidation.
Myth: Debt Consolidation Is Nothing but a Scam
This is a sheer misconception because debt consolidation is supposed to be a fully legitimate avenue for paying off your existing debts. However, it is always a good idea to do a thorough background check of the debt consolidation loan company. You must examine the credentials and review the related licenses, certifications, and accreditations. You must research the debt consolidation company that offers you the debt consolidation solution. You must always choose a reputed and trustworthy organization such as NationaldebtRelief.com. You must become alert and steer clear of a provider who asks for a huge lump sum upfront and tells you to quit creditor payments. You simply need to be alert and aware, otherwise; the debt consolidation process is wholly legitimate and regulated effectively.
Myth Debt Consolidation Cuts Down Your Debt
It is a misconception that debt consolidation automatically implies a reduction in your existing debts. Paying off your existing debts whether they seem to be student loans or credit card debt with an effective debt consolidation loan would not be reducing or forgiving your loans instead, all your separate multiple debts are rolled into one unified whole. You are required to come up timely with the monthly payments.
You may reduce your debts by the process of debt settlement which is another debt relief process that involves the hiring of professional debt consultants or negotiators to negotiate a settlement with your creditors. Often creditors who have lost hope and faith that their money would be repaid would settle for even less than the outstanding balance. When you pay the lump sum settlement amount, the debt is eliminated. Debt settlement may seem fancy and may sound like a pretty attractive proposition but it is very expensive and could hurt and prove devastating for your credit score and history.
Myth: You Would Always Make Savings on Interest
If you are having a robust credit score and an impressive credit history, you may be able to get a loan that offers a lower rate of interest as compared to the interest rate of the existing debts. However, your total interest amount would be boosted provided the repayment term is extended. In case of a debt consolidation loan, the new monthly payments and the new rate are generally lower and may boost your cash flow. However, the longer-term would mean you would be paying more in terms of interest. You must avoid shortening your loan term to such an extent that the new monthly payment is not affordable anymore. You must consider using a debt consolidation loan calculator for seeing how loan terms and rates would be impacting your payments.
Myth: It Hurts Your Credit Score
We know that debt consolidation loans usually need a really hard credit pull once you apply, however, that would be reducing very few points from your overall credit score. Moreover, there are chances of your credit score being boosted simply because you have just one monthly payment to take care of after debt consolidation has been done. So you could be making timely payments without faltering and this could have a positive impact on your overall credit score. When you are improving in your debt payments and are paying dot on time, this factor contributes to 35 percent of your overall FICO score. The short-term hit initially by debt consolidation could be worth it provided you could stick to the specific debt repayment plan.
Myth: It Is Very Expensive
This is a clear misconception. The debt consolidation could prove to be a quite affordable way of repaying your debts promptly. Interest rates relating to your debt consolidation loan may vary from one lender to another but are certainly lower as compared to the average credit card interest rates. Interest rates start as low as just 6 percent for borrowers having an excellent credit score or FICO score ranging from 720 to 850.
Several debt consolidation loans are known to carry no additional fees, instead, the interest seems to be your sole cost. However, some loans may come with a one-time origination charge or fee which covers the overall expenses of loan processing or small charges for late payments, etc. Lenders very rarely would charge prepayment fees for paying off your debt consolidation loan earlier than the agreed date. We know that the loan’s APR would be including origination fees thus, making it simpler to compare all costs across several lenders.
Myth: It Is Quite Time-Consuming
Most lenders provide an online loan application procedure that helps you in effectively applying and uploading necessary documents via a safe and secure online portal. This is certainly not a time-consuming process because the entire debt consolidation process right from putting in your application to approval and loan funding would be taking just a few days or a maximum of a week. You could speed up the entire process by keeping vital documents such as bank statements and pay stubs ready well ahead of the application process.
Conclusion: The Risks of Debt Consolidation
As per https://www.forbes.com, logically speaking, consolidating your multiple debts into a lower interest rate debt consolidation or personal loan could help you eliminate your debts faster. However, debt consolidation involves a huge risk. When you successfully repay all your credit card debts, you would again be tempted to use newly available credit. Keep reminding yourself that you got in to neck-deep debt only because of excessive credit card spending. So steer clear of the dangers of giving into temptations. Remember to take into account the myths and the truths while opting for debt consolidation.