Most people who are struggling with their debts and personal finance are often in a dilemma whether or not they should opt for a debt relief program to ease their finance a bit. This is due to the common misconception about these programs. Ideally, you can opt for these programs and expect to get rid of your debt after a specific time limit which can range anywhere from 3 to 5 years.
The most common way to get rid of your debt seems to be settling it with your creditor for a reduced amount but if you have multiple debts in your name then the best alternative seems to be consolidating your debts.
- Debt consolidation is a process in which you pay off your existing debts with a new larger loan or line of credit.
- Since all your existing debts will be paid off with this loan, you will now have only one loan and one creditor to repay every month.
- This loan will carry much lower rate of interest and will provide you with more time to repay for its extended loan term.
This way you can get the much required relief from having to manage multiple loan accounts thereby eliminating the chances of miss outs and accrued interest and penalties.
If done properly and under the right circumstances, a debt consolidation loan can help you to get your debt as well as your personal finance under control. However, there are lots of entities that will claim about such offers but are eventually unable to deliver the desired results. They may even charge illegal fees from you in and for the process. It is therefore suggested that you rely only on reliable sites and sources such as https://www.nationaldebtreliefprograms.com/ if you do not avail such a loan from a traditional bank for specific reasons.
The common misconceptions
Apart from that, it is also suggested that you know about the common mistakes people make and the misconceptions people have. It is required that you move with your debt and finance management process in full confidence for which you will need to understand the myths, the pros and cons of the process as well before pursuing it.
- Most people believe that with a debt consolidation loan they can consolidate all types of debts together. However, the truth is that with a debt consolidation loan which is an unsecured personal loan you can pay off multiple highinterest debts such as credit cards and payday loans.However, you cannot use it to pay off federal student loans for which you will need to take out the specific federal student loan consolidation. You can also consolidate credit card debts using a balance transfer credit card and pay of the debt without any interest within 21 months of the transfer.
- People also believe that they need excellent credit to consolidate their debts which is true to some extent because just like in any other type of traditional loans, the higher your credit score, the more favorable terms you will get on the debt consolidation loan or the balance transfer credit cards. However, you can also qualify for such a debt consolidation loan with good, fair and even poor credit especially if you have a longstanding relationship with an institution.
- There are a few people who think that they need to pay to get a consolidation loan which is not true always. If you qualify, you can get a balance transfer credit card without any transfer fees or no interest charges if you take it during the introductory period and pay it off within that time. However, you are requested to check it out with the lender whether or not they charge origination fees. There may be a few credit card companies that may charge a balance transfer fee as well.
- Debt consolidation is not always a scam though there are several companies that may take advantage of your situations. For this reason you are requested to use caution when you interact with these companies especially regarding their service charges. There may be companies that charge a fee to consolidate student loans which is typically free if you do it directly through the government. Few companies may also charge an advance fee before issuing a loan and you should stay away from these advance-fee loan scam companies. It is best that you follow the list of companies that are banned by the FTC from providing and debt relief services.
- If you choose to follow a debt management plan instead of taking out a debt consolidation loan then you will have to with a nonprofit credit counseling agency. They will simplify the payments as you will potentially pay less on interest. You will need to make a single payment each month to the credit counseling agency as agreed and this amount will be then paid to all your ay your creditors on your behalf till the time all your debts are cleared in about five years’ time. The credit counseling company will chargea monthly fee from you for their service apart from an enrollment fee.
- People also have this misconception that taking out a debt consolidation loan will hurt their credit. On the contrary, it will not affect your credit as the debt settlement will as that will reduce your outstanding loan amount. However, when you open a new account it may result in a small drop in your credit score that is fewer than five points but if you open multiple new accounts over a period it will affect your credit score more dramatically. Therefore, research your options well in advance to find out the type of debt consolidation loan you may qualify for. Make sure that you can make payments on time and every time because that will reflect in your payment history which accounts for the major part of your credit score, 35% to be precise according to FICO.
Therefore, consolidating debt is the best way to find relief from your debts though it is not the only way to do so.