If you are in debt, then you’ve probably heard about debt consolidation before. Heck, even if you’re not in debt, there is a good chance that you’ve heard the term tossed around on a television commercial, an online advertisement, or by a friend or acquaintance. Simply put, debt consolidation can be a very effective debt relief tool and is therefore very popular.
We’ve written a lot about consolidation here on Project Debt Relief in the past (as is evidenced by the great number of posts in our debt consolidation tag). However, we’ve always posted informative articles written in either ‘these are the facts’ or ‘how-to’ sorts of styles. But today we’re going to look at a few of the biggest myths about consolidating debt, because, when not spoke about by a reliable resource, there sure is a lot of mystery and misinformation surrounding the topic.
And with that here are the four biggest debt consolidation myths:
1. Debt Consolidation is a Scam
Sure, the debt relief industry is certainly filled with its fair share of scams and scammers but that doesn’t mean that there isn’t legitimate help out there. While consolidation has suffered from its fair share of scams, there are many reputable companies out there that offer effective and reliable consolidation plans.
To avoid a scam, do your research. Look at reviews of the debt relief company in question and be sure to view their Better Business Bureau review. Better yet, choose a company that has helped someone you know in the past. And don’t forget to check out our past post on avoiding debt company scams as well.
2. Debt Consolidation is the Same Thing as Credit Counseling
I don’t know where this myth came from but it sure is brought up a lot. Many people falsely assume that credit counseling and debt consolidation are the same thing. Part of the reason for this misbelief is likely the fact that the two forms of debt relief are often mentioned in context with one another.
To put it simply, credit counseling is counseling for people struggling financially while consolidation is an actual debt management plan.
3. Debt Consolidation Hurts Your Credit Score
Another of the biggest myths about debt consolidation is that it hurts your credit score. It does not, in fact, significantly impact your score as a very small fraction of your overall score is affected by new credit (the category that debt consolidation falls under). It is important, however, to pay close attention to the specifics of your financial situation and your credit so that you can pick the debt consolidation plan best for you. Debt settlement might affect your score some, but not consolidation.
If you are really worried about your credit score, talk about it with your credit counselor. Often credit counselors also have experience with debt management and will help ensure that your plan doesn’t affect your rating. In addition, it is much more important for your credit score that you make your regular monthly payments on time rather than by avoiding debt relief help.
4. Debt Consolidation Leads to More Debt
A startling number of people are under the assumption that consolidation leads to more debt. While it can happen sometimes (just as nearly anything else can), it is definitely not par for the course. As long as you find good terms on your consolidation loan, especially regarding a lower interest rate, there is no reason that you should be worried about increasing your debt. Debt consolidation can actually help decrease the amount of your debt by lowering the interest that you pay and enabling you to pay off the overall debt much more quickly.
There are a whole plethora of myths and misconceptions about consolidation and debt relief floating around out there. If you are struggling with debt and need help, it is in your best interest to do your research and gain your facts from sources that you can trust. This will help you make the best decisions regarding your future course of action and will enable you to get out of debt all the faster.
Remember to take a look at our blog post on whether debt consolidation loans are a good idea for you in the meantime.