Money For Lunch – Debunking the myths of debt consolidation

Debunking the myths of debt consolidation

April 14, 2017 11:19 AM0 commentsViews: 15

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The proliferation of internet has changed the ways of gathering information that are available just at a click. It has also brought along with it the problem of plenty. You are served too much information that makes it quite challenging to sift through and pin point the most relevant ones. Moreover, there is scepticism about the authenticity of some information that can lead to misinformation.

A typical example could be when you are trying to understand the process of debt consolidation and come across information that depicts the process in bad light. If someone shares his or her bad experience with the process then the process itself cannot be termed to be bad as there may be other factors that contributed to the bad experience. This has led to some myths that surround debt consolidation. Unearthing the truth by putting the myths aside is the purpose of this post.

Credit score gets affected when debts are consolidated

Credit scores do not get affected when you go for debt consolidation. You are just taking out a new loan while paying back others – then why should it hurt the credit score? Yes, credit score might be damaged if you default in paying back the loan. But that is true for any kind of loans and not only that which is related to debt consolidation. Rather, you can improve your credit scores by maintaining a good pay back record.

Desperate situations call for debt consolidation

The decision to consolidate debts does not necessarily arise from desperation. It can be a well thought out decision to streamline finances so that you deal with only one lender. The urge for better management of loans and saving on interests drive the decision for debt consolidation that enables faster settlement of loans. However, it can also be used in desperate situations.

Debt consolidation services are same as debt management services

Debt consolidation comes under the umbrella of debt management but it should not be construed to be a debt management service. Debt management services relate to entrusting a debt management company to manage your debts on your behalf. On the other hand, debt consolidation services relate to counselling, identifying new lenders and even negotiating with debtors for favourable terms of paying back their loans.  Debt consolidation companies do not take responsibility for managing your loans but show you the way only.

Debt consolidation loans are linked to assets

In most cases, debt consolidation loans are unsecured loan, hence it is not connected to immovable assets like homes. It is similar to personal loans. However, to opt for linking such loans to home equities is the choice of the borrower and not a norm for securing debt consolidation loans.

When loans are in disarray and becomes difficult to manage, debt consolidation gives an opportunity to learn from your mistakes and take corrective actions in future. It is a wakeup call for better fiscal management and does not encourage taking more loans.  Remember that the system is as good as you are able to make proper use of it.




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