Nothing can be more stressful than seeing your debts accruing. Well, this is the problem that is faced by people from all over the world and people keep looking for a solution to get rid of their debts.
Fortunately, there are multiple ways to do and if you are struggling with your debts too, then you must have heard about some of them as well.
Among all the options available to complete debts, one method that is highly popular is debt consolidation which is basically a debt financing method in which the borrowers opt for a new loan in order to end their previous ones.
Well, there is no doubt that debt consolidation is one of the most effective financial tools to clear off the debts, but despite its popularity, it also is a victim of numerous misconception and myths that forces many people to stop from using it.
Here, in this blog, we will be discussing the most common myths related to debt consolidation briefly and will be revealing the hidden truth one by one. So, let us get started.
Myths related to Debt consolidation that needs to be clarified
1. It helps in reducing your debt
This is undoubtedly the biggest misconception among the people who think that the size of the debt will reduce drastically after going for debt consolidation. Well, this is not the correct as in reality; debt consolidation rolls the entire debts of the borrower into a new one and with only one monthly installment.
So, instead of worrying about the multiple installments, you will have to focus on the payment of only one installment. Therefore, instead of reducing your debs, it helps in reducing your stress and that indeed is really important to deal with when in the burden of too many debts.
Actually, it is the debt settlement that helps the borrower to reduce their debt.
2. It helps in saving a lot of interest
Well, if you have an impeccable credit score or you are getting the benefits from the government, then there will be a strong chance that you will be offered a lower interest rate on debt consolidation.
There are various lenders in the market who specializes in the products for the people who fall, under this category and they may also offer a decent interest rate as well.
Now, coming to the main point the interest that you will be paying will depend very much on the repayment term, income status, credit score and other useful things, just like any other typical loan. Therefore, you might have to pay a larger interest.
3. It can damage your credit score
Another popular myth among the people about debt consolidation is that it can damage the credit score. Well, it is true that applying for debt consolidation requires a pretty decent credit pull, but that can only take a few points of your credit score.
On the contrary, if you manage to pay your debts on time, then it can help immensely in improving your credit score which will basically make you a more worthy borrower in front of the lender.
Moreover, there is no harm in taking short term damage in order to gain the long term goal, so you can go for it if your credit score has hit the rock bottom and you want to improve it.
4. It’s quite expensive
There are many people who think that debt consolidation is very expensive but this is a complete truth. Basically, it is just like any other normal loans so the interest rate that you will be offered will be actually determined by your credit report.
So the higher is your credit rating, the better will be the chances of getting a decent interest rate. Also, you should know that the interest rate varies from lenders to lenders as well, so make sure that you do good research of the market before dealing with anyone in particular.
Most of the debt consolidation loans come with no additional charges so you won’t have to face any surprise fees at the end of your repayment.
5. It’s a time-taking procedure
When it comes to a loan, the first thing that comes into the mind of most people is standing in the long queue. Well, that was the old day method when borrowers had to wait in long queues and face bulky applications.
Today, in this digital age, you will find plenty of online who can provide you with the loan instantly and with minimum documentation and the required amount are transferred to the borrower’s bank account within a few minutes if approved.
So, the myth that you have to meet the lenders multiple times, arrange meetings and send a bulk of documents in order to get the loan does not exist anymore in this digital world.
6. It is the only method to clear past debts
When it comes to getting rid of debts, many people think that debt consolidation is the only way to clear off all past debts. Well, this is again not true and there are other alternatives available as well.
One such is debt settlement, where you can hire an agency who will request your lender to lower down your debts and come with the amount that is possible for you to manage up.
This can be extremely beneficial when you are under the burden of excessive debts. Also, you can go for credit counseling program or a debt management plan which is also quite popular in the finance industry.
7. It causes more debts
There are people who believe that debt consolidation doesn’t help in fixing the issue permanently and can also result in more debt.
Well, this is not the reality because if you know how to use it properly, then it will definitely help you to curb your debt problem for sure. Therefore, it all depends on you how you use it and if you are able to complete the payment on time, then you will face no such issue.
However, if you delay in the payment, then like any other loan the interest rate will keep on increasing and will eventually affect your credit score. This is the risk involved with every other loan in the market and debt consolidation loans are no different.
8. It requires a good credit score for the approval
Debt consolidation is just like other financial products where the chances of approval increase with the increase in your credit score and the borrower will be offered better deals and terms.
However, the myth that having a good credit score is a must for getting a debt consolidation and you can get it with a good, fair, and even bad credit rating. However, to get debt consolidation, you have to get in touch with the right lender as not everyone will be providing at such score.
Also, make sure to ask the lender whether there will be any kind of fees in the form of a penalty or additional charge as compensation for having a bad credit score. If the amount is not too high, then there is nothing wrong to go with it, as in the end, you will be saving hundreds of pounds.
9. It is nothing just a scam used to trap people
Debt consolidation is undoubtedly a great financial tool to clear lots of debts, still like any other things out there; it is also a victim of various illegal and spamming activities.
This doesn’t mean that the entire method is wrong as it is because of the fraction of the lenders because of whom debt consolidation is defamed and who tries to take advantage of the needy ones.
Well, there are ways to avoid such scams like if there are any companies who claim to help you get rid of all your debts, without knowing your financial history, then there is something fishy or doubtful.
Therefore, do good research on the market and about the agency with whom you are planning to work, and then finally take the final decisions.
Yes, you are in a dire need of money, but rushing things can make the problem even worse and you might end up landing into a debt trap from where there is no escape.
10. It can only be given to people who have their own home
Lastly, there is an air of speculation among people that debt consolidation can only be given to the people who have their own home. This is one of the most absurd myths that people have as in reality, having a home of your own is not at all mandatory.
Yes, it is true that having a home of your own will have a slight advantage in getting better offers from the lenders when applying for the consolidation, but it does not have a decisive role in the approval.
Wrapping up, so these were some of the most common debts that people have for debt consolidation. So, if you are also a victim of any one of these mentioned myths that stopped you from applying for the consolidation, then you know your choices better now.
DESCRIPTION: Debt consolidation is one of the most effective ways to get rid of large debts. However, it is still the victim of numerous myths and misconception.
Author Bio: – Nicole Dickson is a financial consultant at First Finance, an online lending company in the UK. She has experience in the field of finance of more than 10 years. In First Finance, she is working for more than 3 years and gives the consultancy and loans on b