March 12th, 2017 10:26 AM by Jackie A. Graves, President
Benjamin Franklin once said, “I would rather
go to bed without dinner than to rise in debt.” Unfortunately, there are many
people that rise every day wondering how to meet the monthly payments on their
loans and credit cards.
When your debt starts getting out of control,
you should consider debt consolidation as one of the possible solutions. You
may have questions about what debt consolidation achieves and how it works, so
here in this article we will demystify these debt consolidation myths.
Consolidation Lowers Your Debt
consolidation cannot lower the total amount that you owe! What it can do is
help you lower the amount of interest that you pay on what you already owe, and
reduce the amount of late fees that you may be incurring by not meeting the due
dates of your monthly payments.
Consolidation Immediately Improves Your Credit Score
debt consolidation involves taking a new loan at a lower interest rate to cover
all other debts, the process immediately makes a small dent on your credit
score. However, this small decrease shouldn’t discourage from taking on a
project to pay down your debt faster. By making your monthly payments through a
low-interest debt consolidation loan, you are taking a bigger chunk of the
principal and improving your credit score little by little.
Consolidation is Only Possible with Good Credit
is a myth. The main requirement for debt consolidation is to find a
lower-interest loan. Even if their credit score prevents them from qualifying
for an unsecured loan, homeowners have the option to take out a secured loan
using their property as collateral. Before taking a Home Equity Line of Credit
(HELOC), homeowners should understand all the consequences from this financial
Consolidation Requires Advanced Fees to Guarantee Loan
is a major red flag. The FTC warns customers to be weary of companies requiring
pre-payment to “guarantee a loan”. No company can guarantee you a loan or even
represent that a loan is likely. While fees may be due after you get the loan,
they will never be due before.
on Consolidation Loans is Fixed
you use a HELOC, unsecured loan, or a balance transfer offer from a credit card
for your debt consolidation, make sure to read the fine print. That low, low
interest rate may be fixed only for a couple of years. Understand what may
trigger changes in the interest rate, and take advantage of the lower-rate period to pay
off most, if not all, of the debt.
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