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Created By : Stacy B Miller
On 28th Jun,19
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Is debt making your life painful, miserable, and expensive? If so, then you have a small share in the country’s $4 trillion consumer debt, which is affecting both the rich and poor.

In the last 3 months of 2018, American consumers have increased credit card debt by almost $26 billion. According to a report released by the CNBC, almost 55% of consumers who have credit cards have accepted that they have debts.

In 2018, 22% of consumers have said that they carried an average balance between $100 and $500. One in 10 consumers carried an average balance above $5000.

So you’re not the only one.

Consolidating with a program is one of the smart ways to handle your debt. Better known as a debt consolidation program, it can help to club your multiple bills into one, and that too at a low interest rate. This helps you to pay back creditors easily.

But there are a few debt consolidation misconceptions, which should be cleared before you decide to join this process. Misconceptions cloud your opinion and prevent you from making the right decision. So, the sooner you know about the debt consolidation myths and facts, the better for your financial life.

Here are the 9 debt consolidation myths you should be aware of.

Myth 1. You can consolidate all types of debts

A debt consolidation program or a loan helps you to discard high-interest loans like personal loans and payday loans. It also helps you to pay off credit cards, utility bills, collection accounts, and charged-off accounts. But it doesn’t help you to pay off student loans. If you have federal student loans, then you can opt for federal student loan consolidation. It doesn’t lower your interest rate but it gives you extra time to repay your loan.

Federal student loan consolidation has no connection to a normal debt consolidation program.

Myth 2. Debt consolidation lowers your credit score

It helps to improve your credit score over time. Initially, your credit score may drop by a few points. But in the long run, as you pay off your debts in full and over time, your credit score goes up. Payment history constitutes 35% of your FICO score. When you build a positive payment history with a debt consolidation program, your credit score also makes an upward swing.

Myth 3. Debt consolidation is too costly

The average interest rate on a debt consolidation loan for borrowers with stellar credit score is 6%, which is lower than credit cards. Several consolidation loans don’t carry additional fees. So borrowers have to pay only the interest.

Some lenders charge a one-time origination fee, and that’s all you have to pay.

Debt consolidation fees are also not expensive. If you don’t believe, then check out our debt consolidation fee structure from here.

Myth 4. Debt consolidation reduces your payoff amount

This debt relief option rolls your multiple high-interest loans (mostly unsecured) into an affordable single monthly payment plan. You have to make single monthly payments at a low-interest rate.

Debt consolidation doesn’t reduce your payoff amount.

If you wish to lower your payoff amount, then you should opt for debt settlement. It typically involves intense negotiation with creditors for reducing the total debt amount.

Call 800-530-OVLG to get debt settlement help. Our Financial Coach will negotiate with creditors on your behalf.

Myth 5. It will be tough to qualify for loans in the future

This is not actually true. When you manage debts responsibly through a consolidation program, it leaves a good impression on the potential creditors. They appreciate the fact that you’re doing something to fulfill your financial obligations instead of ignoring them.

Myth 6. Debt consolidation pushes you toward more debt

A common myth is that debt consolidation throws you into a debt pool. But this is not true. The fact is, this debt relief option helps to simplify your payments. However, if you don’t change your present spending habits, then you would be again in debt. It’s wrong to blame debt consolidation for it.

A debt consolidation program doesn’t offer you a customized budget plan. But you can download a good budgeting app, and manage money like a pro. Plus, you can use these tips to stay debt free.

Myth 7. You need to own a home to consolidate bills

Well, this is not completely false. In case of a debt consolidation loan, owning a home gives you an advantage over others. You need to have some home equity to consolidate debts with a loan. However, in case of a debt consolidation program, it doesn’t matter if you own a home or don’t own a home.

Myth 8. Credit counseling is a type of debt consolidation

Usually, credit counseling happens before you enroll in a debt management plan. It is not a type of debt consolidation.

In a credit counseling session, you’re given tips and suggestions to manage your debts. When those tips and suggestions don’t work, then they recommend a debt management plan.

Myth 9. It takes a lot of time to complete the application process

Most companies have a secure online portal nowadays. The entire debt consolidation process is done online. All you need to do is apply and upload the required documents like a copy of pay stubs and bank statements. It shouldn’t take more than a few days to complete the application process. And, there is no need to visit the office and have meetings. You can ask your questions online. You don’t need to visit the office several times. This helps to speed up the process.

So there you go. All the 9 debt consolidation myths have been debunked right in front of you. Now, you’re well informed and no one can manipulate you. No one can push you in the wrong direction. Not even us.

Last Updated on: Fri, 28 Jun 2019