The Truth About Debt Consolidation

The Truth About Debt Consolidation
Photo by Christian Schnettelker – CC BY 2.0

Want to know the truth about debt consolidation? Then read on, as this article will cover what this service offers, and will shed light on who will, or will not, benefit from it. Education is the key to making any rational decision, and those that are in debt will need to learn about this process, and how it may affect them personally.

Debt consolidation is the process of combining your various debts into just one. This is generally accomplished by taking out a loan. This loan will likely have an interest rate attached, but it should be lower than the combined interest rate average of your other debts. This loan is not issued directly to you, but instead is distributed directly to your debtors.

Once this is done, you can stop paying all of these debtors, and start repaying the one loan instead. Many enjoy how simple this makes the process of paying back debt. This will also stop all of those nasty phone calls and letters that may be causing you a great deal of stress. It has been proven that financial trouble is one of the most stressful life events, and that it can have negative implications on your health. Clearly, this is not a problem that should be allowed to continue for any length of time.

Many people think that debt consolidation and debt settlement cannot be used at the same time, but this is a myth. Not only can they be used together, but many choose to use them together in order to lessen the total amount of debt they owe prior to taking out their loan. There is one drawback to debt settlement that you should be aware of.

This would be the fact that debts that are paid through a settlement process will reflect differently on your credit report than those that are paid in full. Debts that are settled for less than their full amount will be marked as such, and will have a more negative bearing on your credit report than those that were paid at the full amount owed. This is not a huge deal to some people, and to others, it is. Either way, it is something that should be taken into consideration.

The debt consolidation process itself will not harm your credit. Actually, it will help improve your credit score. However, it cannot erase the damage that has already been done by missing payments, or making late payments, prior to getting help. Only time will erase these entries. This is yet another reason why this problem should not be allowed to continue for long. It can take a long time for bad credit to correct itself, and the fewer negative entries, the better.

Debt consolidation should be considered well in advance of bankruptcy. While bankruptcy may seem an attractive option for those that just want relief, it has very long term negative implications. Not only does it destroy your credit rating for as long as ten years, but it can actually prevent you from getting a job. Ten years is a long time to have such an albatross around your neck, and bankruptcy should be the last resort.

Another truth about debt consolidation is that it is not a scam. While there are a few companies that charge high fees, or include hidden fees, these companies are the exception, not the rule. There is a very simple way to avoid these bad eggs. Research the company that you are considering using very well. A simple internet search is usually all that is required to find out the information you need to know. Additionally, always read your agreement all the way through before signing.

It is important that the truth about debt consolidation be made available to the public. Far too many people do not realize exactly how this service works, or how it may help them. The vast majority of people that are in financial trouble can benefit greatly from this service. If you are one of the thousands of people in this country that are having problems with debt, it is vital that you take action now. Whether you choose debt consolidation, or another method, the faster you take action, the faster the stress will go away.

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