As you can imagine debt consolidation isn’t an easy enough financial loan product to grasp. Therefore they’ll be plenty misconceptions about what exactly it is and how it works. Here are just 8 myths about debt consolidation.
Myth no. 1
- Debt settlement is a form of bankruptcy.
With Debt settlement you can negotiate for yourself with your creditors to reduce the amount you owe in exchange for a one-time payment. Or through a company on your behalf specialising in negotiating debt, you then repay the agency through monthly payments over three to five years.
But there’s no guarantee it will work, making it an even riskier move. Whereas bankruptcy is a drastic option that can hurt your credit score and haunt your credit report for up to 10 years.
Myth no. 2
- You can’t transfer a personal loan to a credit card.
You can generally transfer personal loans, though not with every credit card provider. Balance transfer credit cards are typically used for transferring debts between credit cards.
Myth no. 3
- You can’t get into further debt while under debt settlement.
You’re able to access other lines of credit, even if you’re settling debt with a specific creditor. To avoid falling further into debt, stick to a budget and keep from applying for credit you can’t afford.
Myth no. 4
- Debt consolidation is guaranteed to get you out of debt.
Debt consolidation can be a solid way to reduce what you’re paying in interest and fees, making it easier to manage your repayments. But if you’re still swiping for purchases on a card you’re paying down, you could be right back to collecting interest.
Myth no. 5
- All debt consolidation loans are the same.
There are several different types of debt consolidation loans and credit accounts.
Myth no. 6
- Credit counseling is a form of debt consolidation.
Credit counseling generally precedes debt consolidation, because it’s truly only advice and tips on how to successfully manage your money and debt.
Myth no. 7
- Debt consolidation will hurt your credit score.
If done properly, it may improve your credit score. That’s because you’ll be paying off a bunch of smaller loans and any time a loan is paid in full that helps your credit score.
Myth no. 8
- Debt consolidation requires getting help from an outside agency or a lawyer.
You can also consolidate debt on your own. You’ll just have to know a bit about how to do it and what the options are.