Debt consolidation – Know the truth behind the veil of myth
Debt consolidation is one of the most common processes of getting out of debt. However, there are a number of wrong notions that are still attached with debt consolidation. 5 of these are given in details below; the myth and the truth behind them.
1. Myth: Debt consolidation and debt settlement are the same.
Truth: It is a completely wrong notion that a debt settlement company and a debt consolidation company provide similar services. In debt consolidation you can merge all your debts while reducing the interest rate that you get on each of your debts into a common low interest rate. In a debt settlement process your entire outstanding debt amount is reduced by 40% to 60%.
2. Myth: You need a lawyer for debt consolidation.
Truth: There is no need of a lawyer to consolidate your debts. However you may seek help of a lawyer from some debt consolidation company to help you understand the nuances of the process.
3. Myth: Debt consolidation always saves a considerable amount of money.
Truth: This fact is not always true. There are some financial institutions that offer debt consolidation loans at quite a high interest rate. Although these interest rates are lower than your prevailing interest rate, they are not low enough to help you save a considerable amount of money.
4. Myth: Consolidating with 0 interest card is a good decision.
Truth: This is a good move as long as you can pay off the debts within the given time period. Usually these cards expire within 12 months and after that your interest rate becomes very high. This rate is higher than the rate that you were originally paying on your debts and thus it becomes very difficult for you to pay back your debts.
5. Myth: Consolidation loan and program are the same thing.
Truth: There is a major difference between the way a consolidation loan and a consolidation company works. A debt consolidation company will negotiate with your creditors and ask them to reduce the interest rate. They will distribute your debt payment amongst your creditors every month. A consolidation loan would usually require an asset, most often your property as collateral. You can pay back your debts with this loan and pay back this single loan with time.
Thus you can see how there are various myths about the debt consolidation process which creates a wrong picture about the process.
Author by Stewart Smith