In this modern era, numerous people carry debt and in case you are one such person grappling with overwhelming debts and juggling multiple bills and payments, there is no reason to feel depressed and hopeless. You could still take charge of the situation with debt consolidation that is going to embark you securely on the road to a debt-free existence. We understand that the credit card debt on an average per household in the United States is over $8,398 in 2019 and that means Americans owe over $1.07 trillion in terms of total credit card debt. One of the most effective ways of tackling and eliminating credit card debt is debt consolidation. A debt consolidation loan could help in reducing the number of your outstanding bills and debt repayments and help you to make just a single monthly payment. However, there are several myths and baseless rumors doing the rounds relating to debt consolidation. Let us try to identify those myths or misconceptions and know the truths behind them.
Misconception: Debt Consolidation Seems to Be a Scam
Debt consolidation is supposed to be a legitimate way of paying off your outstanding debts. However, it is always a wise move to do a meticulous background check of the debt consolidation agency and examine all the relevant credentials including licenses and accreditations. The debt industry had got a bad reputation post the economic recession in 2008 as many predatory lenders had come up and they took advantage of vulnerable people who were suddenly in neck-deep debts. However, since then the debt industry has been following stringent rules and regulations as per federal and state standards and requirements. You must identify a reliable debt relief agency such as NationaldebtRelief.com for perfect solutions. You must be duly warned if the company asks for any substantial amount upfront.
Misconception: A Debt Consolidation Loan Would Always Save You Money
There are numerous kinds of debt consolidation loans. Some of them may result in saving money. However, you need to do some research and explore the choices. You may take out a debt consolidation loan from a bank or other lenders. You could alternatively, opt for a home equity loan where you would be using your home as the collateral for getting a low-interest loan. Moreover, you could choose the option of an unsecured personal loan.
The purpose of taking out a debt consolidation loan is primarily to obtain savings. In the instances discussed above, your credit score would play a pivotal role in the precise rate of interest you are offered on your debt consolidation loans. In the event you are having overwhelming credit card debts, it would adversely impact your credit score. Hence, you would get a loan with a relatively high-interest rate. You need to keep this factor in mind while looking for a debt consolidation loan.
Remember if you are paying more interest on your debt consolidation loan as compared to the interest you were used to paying on your humungous credit card bill then it is best to choose an effective debt management plan. DMPs are known to have agreements that offer relatively lower interest rates irrespective of your credit score.
Misconception: Debt Consolidation Culminates in More Debts
A common complaint against debt consolidation is that it is not effective enough to eliminate the debt issue right from its roots. Remember debt consolidation could help you eliminate all your existing debts but if you do not make the necessary lifestyle modifications and do some tweaking in your spending behavior or habits, there is no doubt about it that you would be again submerged in overpowering debts. Debt consolidation would never lead to more debts provided you follow a restricted lifestyle and make all relevant modifications in your spending habits. Stop splurging and stick to your personalized budget to achieve your unique financial goals. As per https://www.forbes.com, mathematically speaking, by using a debt consolidation loan with a relatively lower interest rate, you could eliminate debts faster. However, this may involve risk. Once you become debt-free, you would surely be tempted to apply for more newly available credit. Remember generating more spending power could prove to be hugely hazardous and predominantly a dangerous strategy. According to debt expert Dave Ramsey, you simply cannot go on borrowing money to get out of the vicious debt cycle or the debt trap.
Debt consolidation is surely the way to go provided you know pretty well why you were in such a messy financial situation and you need to keep constant track of your spending patterns. Debt consolidation could prove to be an amazing tool provided you keep your spending firmly under control. You have to be careful after debt consolidation is done. In your euphoria and frenzy do not end up adding new debts. Simply exercise more caution about your money matters. Quit the habit of using credit cards. A cardinal rule associated with debt consolidation is to stop using credit cards while paying off debts.
People have resorted to cutting their credit cards or locking them away and such tactics have proved to be successful in helping them attain their long-term financial goals. If you wish to stay strictly committed to your financial aspirations, it is best to put down in writing precisely why you need to be debt-free and consider setting periodic reminders for you to examine your progress in that direction.
Misconception: Debt Consolidation Damages Your Credit Score
The credit score is impacted by two pivotal factors such as credit utilization and payment history. With debt consolidation, your credit score could go down a wee bit initially because of opening new credit and closing your existing accounts. But this slight dip would be recovering speedily and would rise consistently as prompt and timely debt repayments are made and the outstanding amount goes down. Remember your credit score would certainly be better once you become debt-free.
Consolidating your multiple debts into one single debt would prove to be empowering and act as a major psychological boost since things look manageable again. However, debt consolidation may not be the perfect solution for everybody. Consolidation seems to be most effective in high-interest credit card debts. But individuals whose expenses and income would not permit them to opt for debt consolidation for resolving their debt issues must opt for bankruptcy.