5 Debt consolidation myths and truths you should be aware of

Have you piled up multiple bills and are thinking about the ways to get rid of debt comfortably? If yes, then debt consolidation can be a viable option. However, there are lots of misconceptions about the process which confuse the debtors. Read on to know about 5 common debt consolidation myths and truths.

Debt consolidation – Myths and truths

Here are the 5 debt consolidation myths and truths you should be aware of:

1. Myth: There is no difference between debt consolidation and debt settlement

Truth: It is a myth that there is no difference between debt consolidation and debt settlement. Debt consolidation helps to combine or merge all your outstanding loans into a single debt. It also helps to lower your interest rates and waive off the late fees. On the other hand, debt settlement helps to lower your payoff amount by around 40%-60%.

2. Myth: Debt consolidation always saves a lot of money

Truth: This is not always true. Some financial institutions offering debt consolidation loans charge very high interest rates. Sometimes, they offer loans at low interest rates but extend the time period. Thereby, the debtor has to make payments on the loan over a long period of time. He ends up paying more interest overall.

As far as program is concerned, some consolidation companies charge exorbitant fees for their services. This increases the monthly payments of the debtor.

3. Myth: You’ll need a lawyer to consolidate your debts

Truth: You won’t require a lawyer to consolidate your debts. However, various companies offering debt consolidation have lawyers to advise them about the various aspects of the process.

4. Myth: Consolidating credit cards through a 0 interest card is a wise move

Truth: Do you think that consolidating your debts into a 0 interest rate card is a great idea? If yes, then it’s time for a reality check. The 0 interest rate credit cards remain valid for maximum 12 months. Once the introductory period is over, the interest rates on these cards get doubled.

5. Myth: Debt consolidation program and loan are the same thing

Truth: This is a tricky one, but there is a difference between debt consolidation program and loan. Debt consolidation program helps to consolidate all your bills into a single debt. The debt consolidation company tries to convince your creditors to reduce the interest rates on the loans and remove the late fees. When the creditors agree to cut back the interest rates and fees, you’ll only be required to make a single monthly payment to the company. The company will then distribute the money amongst your creditors.

On the contrary, debt consolidation loans merge your multiple bills into one bigger loan. Usually, the interest rates on the consolidation loans are much lower than that of the plastic cards. Once you obtain the consolidation loan, you only need to pay off the loan in single monthly installments.

Finally, many people think that debt consolidation helps to solve one’s financial problems completely. This is totally a myth. Debt consolidation does not offer a permanent solution to your financial problems. You’ll have to pay back the debt ultimately. Therefore, it is better to manage your finances effectively.