Busting the Most Common Myths about Debt Consolidation

Generally, it is advised that one should avoid taking loans. This is because debt, if not handled properly, will pull you into a never-ending cycle of payments. Apart from that, it also has thestigma of shame along with thestress of missing out payments attached to it. But in thenormal course of life, especially in modern times, it is difficult to avoid loans altogether. Considering all the factors in play, loans have become a way of life. Whether you are taking aloan to payout bills, buy anasset, pay for emergencies or for luxury, there comes a time when one feels stressed out under the weight of loans.

Debt consolidation can be very helpful if you have more than one loan and want to find asolution to get out of debt. It is one of the most valuable financial plans available. But debt consolidation is also the one that is least understood. There are many myths surrounding it. Here are some of the common myths about debt consolidation that have been tested on the parameters of truth.

Myth 1: Debt consolidation is similar to debt settlement, bankruptcy, and debt management.

The actual fact is that debt consolidation is not entirely similar to another debt programme. The approach behind a debt consolidation programme is more strategic than another programme. All your debts are lumped together and repackaged under debt consolidation. On the other hand, debt settlement and debt management work with theobjective of reducing the amount you actually owe. Bankruptcy involves a court procedure and is a legal procedure that you will be unable to pay off your debts.

Myth 2: Debt consolidation reduces the actual debt

No, debt consolidation does not reduce the total debt. If you owe thecertain sum of money, say R5000, you will still owe that amount after consolidation.  It is not a procedure of writing off or renegotiation. Rather, it will help you to reduce interest rates. If you have many high-interest rate loans, debt consolidation will repackage them into a single loan that has a comparatively lower interest rate.

Myth 3: Debt consolidation will bring you a burden of more debt

It is true that a method adopted in debt consolidation is to take a strategic loan of large lump sum amount that covers the amount of all your present loans. This loan amount is then used to pay off all the loans that you currently owe. Thus, you only have one loan left to pay for. This reduces the stress of paying for many loans. As the single loan is strategically planned out, the interest rate is comparatively low.

Many people fear that getting their debt consolidated will hamper their credit score. If debt consolidation is done properly, it will not impact your credit score at all. In fact, debt consolidation services might help you to improve your credit score along with reducing the interest and taking the burden off your shoulders. A right debt consolidation service providing company is all you need to bring the control of your debts into your hands.

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