10 myths to never believe about debt consolidation

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10 Myths To Never Believe About Debt Consolidation

Do you feel as if your debts had gotten totally out of control – that wherever you turn there’s another creditor, or worse yet a debt collector, nipping at your heels? Has it gotten to the point where you always check caller ID before answering the phone to see if it’s one of your lenders calling to demand payment? Are you constantly watching your checking account balance online to make sure there’s enough money there to cover your outstanding checks? (Continued …)

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You’ve probably heard some of those jokes that “if you are (blank), you just might be a redneck”. Well, if you’re seriously in trouble with your debts, then you just might be a good candidate for debt consolidation. It can be a useful way to get your debts under control and eventually paid off. But before you choose to consolidate your debts, there are 10 myths you need to know.

Credit counselors can get your payments cut in half

Regardless of what some credit counseling companies might want you to believe they simply can’t get your payments cut in half. What a legitimate credit-counseling agency can do is negotiate with your lenders to get your interest rates reduced. This can result in lower monthly payments but they won’t be 50% lower.

Some companies have lower interest rates than others

If you decide to get a home equity loan or line of credit to consolidate your bills, watch out for any company that says it offers a lower interest rate than its competitors. Regardless of the lender, your interest rate will depend on your credit rating. If you’re on the “A list,” you might be able to get a loan at 75 basis points to prime plus two percent. However, if your credit rating puts you on the “B list,” you’ll end up at prime plus 4% or 5%. However, a sneaky lender may not reveal this until you’re so far into the process that you’ll feel committed and won’t want to start all over again with a different lender.

Credit counseling and debt management are the same thing

With credit counseling you’ll be given advice about managing your finances and help in developing a workable budget. In other words, credit counseling is mostly about education – to help you make your payments and get rid of your debts. On the other hand, a debt management plan (DMP) is where the agency collects money from you in the form of a monthly lump sum and then distributes it to your creditors until you have zero balances. This could sound like a pretty good solution except statistics show that only about 35% of the people who contact a credit counseling agency will really profit from a DMP.

There are credit counseling agencies that can negotiate lower DMP payments

This may sound good but debt management programs don’t include debt negotiating, which means they can’t get you lower payments. As noted above, a good counselor might be able to get your interest rates reduced but none of them can negotiate better DMP payments than other agencies. If your counselor says it can reduce your debts, it’s really a debt settlement company where it negotiates with your lenders to get your debts reduced. This can be a good solution but it’s important to understand that debt settlement will cause your credit score to drop precipitously.



Getting out of debt requires a formal program

If you approach your creditors as an individual many of them will enroll you in their reduced-interest programs. However, to do this generally means making numerous phone calls and knowing what to ask for. While it’s much simpler to get a home equity loan to pay off (consolidate) all those bills, it takes a lot of self-discipline on your part to make sure you don’t end up with a mortgage payment, a payment on the home equity loan and another $5000 or $10,000 in credit card bills.

The cheapest way to go is debt settlement

Debt settlement can seem very appealing as it can get your debts reduced by thousands of dollars. But you have to be careful which company you choose as the unscrupulous ones often have contracts that if you miss a payment it will keep all the money in your account as a fee – leaving you in worse shape than ever. Plus, as you’ve read, debt settlement will seriously damage your credit score.

Filing for bankruptcy will ruin your life

In some cases, your financial circumstances may be so dire that filing for bankruptcy would be your best option. If you do this you probably won’t be able to get any new credit for two or three years but it does provide a fresh start. In a chapter 7 bankruptcy all your unsecured debts are discharged (eliminated) except student loan debts, child support and alimony. You would still have to pay on your secured debts such as your mortgage or auto loan but you’d be rid of the others. What it boils down to is if your choice is to file for bankruptcy or quit eating or lose your house or apartment, bankruptcy would be a better alternative.

You always save money with debt consolidation

If you decide on a debt consolidation loan use one of those online calculators to make sure you’re getting a good deal. Some lenders will tell you they can get you a loan with no out-of-pocket costs. But don’t take this at face value. What it may be doing is rolling its fees into your loan so that you end up paying interest on them as well.

A debt management program will help your credit rating

If you have a good credit rating and have been paying your bills on time a DMP can screw up your credit history. On the other hand if you’ve been missing payments and these are already on your credit report a DMP at least won’t make it worse. In fact, a DMP could help because it tells your creditors that you’re taking steps to better handle your debts.

Bankruptcy is not a big deal

If someone tries to tell you that bankruptcy is no big deal, tell him or her to take a hike. Bankruptcy is a very big deal. Many young people owing $7,000 or less have filed for



bankruptcy not realizing it can affect them for years. A bankruptcy will have a serious effect on your credit rating. In addition, if you file for Chapter 7, it will be 10 years before the bankruptcy falls off your credit reports. Bankruptcy should be reserved for extreme cases such as where the person has a $20,000 annual salary and accumulative credit card debt of $50,000 or more.

If consolidate you must

If you’re thinking about consolidating your debts, here are a few tips that could help.

First, concentrate on paying off that new loan as quickly as possible. One of the biggest advantages of a debt consolidation loan is that it will have a lower monthly payment than the total monthly payments you are currently making. But all you're really doing is spreading your repayment over a longer amount of time and you will pay more in interest over the long run. A better answer is to go over your budget and then set your monthly payments as high as you can to get that loan paid off as quickly as possible.

Second, get the loan that's right for you. As you may know there are two types of loans – secured and unsecured. Home equity loans and home equity lines of credit (HELOCs) are secured loans as your house or some other asset secures them. These loans typically have lower interest rates than unsecured loans but the downside is that if you run into financial trouble, your lender could simply foreclose on your house and put you out on the street. Before you take out one of these loans, carefully consider the risk. Check to make sure the loan does not include hidden fees such as "points," which would drive up the cost of the loan. A safer option is an unsecured loan because you would not have to risk your home or any other asset. If you have decent credit you should be able to get a fairly good rate – at least compared to the interest that you are paying on credit cards. Unfortunately, if you have poor credit you may find that only a secured loan will get you a better interest rate than what you're currently paying on those credit cards.

Finally, be sure to shop around. Go to different lenders and compare their terms and interest rates carefully. A credit union or your own bank is often your best bet – especially for a personal loan. And get the offers in writing so you can compare them side-by-side. And make sure you understand if there are fees associated with the loan and if so what they are. Unfortunately, if you want to get a really solid price for that loan you will have to actually apply. But get quotes that are as accurate as you possibly can.



Does this sound familiar?

• You are tired of worrying about money…• You are losing sleep due to mounting credit card debt…• You are fighting with your partner about the bills…• You are living paycheck to paycheck…• You are falling behind on your debts…• You are losing hope…

It’s time to talk with National Debt Relief!

Call 1-888-703-4948Or go to http://www.nationaldebtrelief.com





10 myths to never believe about debt consolidation

Economy & Finance