Consolidating a personal loan is one of the best ways of tackling your debt.
Debt consolidation loans can simplify your payments significantly by rolling multiple smaller bills into one larger one. This can lower your interest costs and enable you to clear your debt faster.
There are many reasons to take out a debt consolidation loan, most of which are very beneficial. However, with all good things, comes some misunderstanding. And debt consolidation is no different.
Here are the top 4 misconceptions about debt consolidation loans to be aware of.
1. Debt consolidation reduces debt
The idea of debt consolidation reducing debt is promoted by a different form of debt relief called a debt settlement. Debt settlement typically involves hiring a settlement company to help you reduce the amount you owe to debt creditors. While this may sound like a more attractive option, it’s also quite expensive.
Debt consolidation only pulls all your outstanding debts into one pull that’s easy to manage.
2. Debt consolidation will harm your credit score
Debt consolidation loans typically require a hard credit pull, but that only always shaves off a few points from your overall credit score.
In contrast, debt consolidation can improve your credit in the long run as you’ll be better placed to pay and manage your debts on time.
The short-term hit on your credit score may, therefore, be worth it considering its eventual outcome.
3. It’s expensive
The truth is that interest rates on debt consolidation loans differ from one lender to another. The upside is that interest rates on debt consolidation loans are lower than the average rates on credit cards.
In fact, most debt consolidations loans don’t carry any extra fees. Instead, their interests are your only costs.
4. Only people with bad credit need debt consolidation
In part, people with bad credit benefit the most from debt consolidation and the opportunities that it offers. However, this form of debt payment isn’t just reserved for borrowers with bad credit scores.
Even borrowers with perfect credit can take advantage of the many benefits that debt consolidation has to offer.
Many people usually assume that debt consolidation is a bad move to make, especially when looking to get out of debt. However, it’s a proactive approach and way of managing your finances and getting back on track to stable financial freedom. Don’t let misinformation prevent you from enjoying the full benefits of debt consolidation.