Managing timely repayments can be a daunting task when you have a rather unwieldy stack of bills each month. However, taking a debt consolidation loan to make them easier to administer can be a smart thing to do. It ‘s a practical solution that merges your scattered obligations into one single bill, usually payable at a lower interest rate and more affordable monthly payments.
However, given there are a lot of myths going around about consolidating debt, it’s a good idea to spend a bit of time debunking debt consolidation claims. Here are a few of the more pervasive ones to consider.
Is debt consolidation costly?
Most people assume that debt consolidation loans cost a fortune as compared to normal loans. The cost of any loan depends primarily on the interest rate levied. There are two primary options when it comes to consolidating them. You can either take another loan or consolidate all your debts using a balance transfer. The interest rate on consolidated loans is usually lower than most credit cards, though it varies from one lender to another.
Debt consolidation and your credit score
Creditors conduct thorough checks before giving money to borrowers. Applying for debt consolidation loans will have a marginal and temporary impact on your credit score. If you can manage your debts efficiently by making timely repayments, such loans may actually boost your credit score by lowering your credit utilization over time.
Does consolidating debts affect the money you owe?
Another important thing to note about debt consolidation is that it does not reduce the amount of money you owe creditors but instead gives you a platform to pay off all your debts against one balance. The advantage of this arrangement is that it gives you more time to pay and reduces the amount payable per month.
The Difference Between Debt Consolidation and Debt Management
Debt consolidation involves taking out a loan from the bank and using those funds to pay the creditors, leaving you with one monthly payment. Debt management on the other hand is a program administered by a credit-counseling agency that acts as an intermediary between the borrower and the creditors. The agency negotiates with the lender to reduce interest rates and gain fee reductions. It receives the money from the borrower and distributes it to the specific creditors on a monthly basis.
Debt Consolidation Increases Your Debt
This is one of the most pervasive debt consolidation claims — and it’s partially true. You will encounter certain fees, depending upon the method you choose, so your debt will increase a bit. However, your principal balances aren’t impacted. The main purpose of a debt consolidation loan is to ease the repayment process by reducing the amount payable per month, preventing you from falling behind payments. You are responsible for your debts, and so your spending habits are the ones that got you into debt. Therefore, work on your financial goals and create a realistic budget to prevent debt accumulation.
The Time Factor
The process of applying and getting approval for a regular loan can be frustrating and time-consuming at times. For instance, applying for a mortgage can take up to 45 days. However, the consolidation loan approval process tends to be a bit faster, usually between one and two weeks. With the latest technology and thousands of lending companies, the process of applying for loans has become less hectic. Borrowers can conveniently apply for a debt consolidation loan online from the comfort of their homes. The process is instant and electronic, including approval and disbursal. Just have the documents ready and enjoy a seamless procedure.
Debt consolidation loans are all the same
There are different types of debt consolidation loans. The most common ones include balance transfer credit cards, unsecured personal loans, and home equity loans. The latter can vary depending on the items used as collateral and the total amount owed. With so many different things to consider, it’s a good idea to seek professional help for debunking debt consolidation claims and getting the right type of loan for their needs.
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