Top Three Debt Consolidation Myths
If you are thinking of consolidating your debts, watch out for debt consolidation myths and bad moves which can lead you further into debt.
Debt consolidation sounds like a magical solution to help solve all your debt problems. It is in fact, quite promising in more ways than one. However, take note that consolidating your debts is not the same as paying off all your debts. This is one of the pitfalls that many people make when consolidating.
More importantly, you should watch out for the false promises that many debt consolidation companies seem to be offering these days. If you have looked around for potential companies to consolidate your debt with, you would surely have encountered attractive offers from credit organizations promising you things like "debt relief within just a click away!" or "slash down your interest rates to zero!" or "cut down your payment by 60% or even more!"
These concepts are surely attractive and for a regular person who is neck-high in debt who is desperate to get out of it can easily fall into the trap of these false promises. It is quite understandable how people in debt will believe anything and do anything to just get out of debt. But remember that if you make the wrong move, you may end up in even more debt than ever before. To make sure you do not fall into this trap. Here are some debt consolidation myths you have to be wary of:
Myth No. 1: Debt consolidation loans are very easy to get.
The Real Score: Many people consolidate their debts because they have already missed out on a few payments and their credit histories have had bad blows. They hold on knowing that they can easily consolidate and breathe a sigh of relief. What makes the situation worse is that if you are in a bad credit risk, many companies will entice you with easy-to-get loans, which actually charge you rates much higher than you regularly pay for with your existing debts - as high as 22%! They usually distribute it over a longer term so you seem to be paying less each month, but you actually end up paying more.
Myth No. 2: Debt consolidators will take care of everything.
The Real Score: Debt consolidation companies usually promise to take care of negotiating to lower your interest rates and reduce your monthly payments. They actually do what they promise, but for a fee which you pay for monthly as well. This amounts to about 10% of what you pay for. If you do not have as much time to do this yourself, it can be worth the money you pay for. However, it is still very important for you to be personally aware and updated about how your credit status is.
Myth No. 3: Low interest balance transfer cards are all-in-one solution to credit card problems.
The Real Score: Though popular as a debt consolidation move these days, remember that the attractive balance transfer card rates only last you a few months. The danger here actually lies in your credit report. At some point, it will start showing up and will look like a bad credit move. So, if you think that a balance transfer card is for you, make sure you personally close all your existing credit accounts or it may look like your creditor closed it, leading to a worse credit standing.
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