Many companies advertise debt consolidation as a way to get out of debt, or put all of your debt in one place and have lower interest rates. Learn about the myths surrounding debt consolidation and how to know if it’s the right choice for you.
1. You Need a Formal Debt Consolidation Company to Help You
Debt consolidation is simply taking out one big loan to pay off your smaller debts. Typically in doing this, your interest rate is reduced and you only have one creditor to pay instead of several. You don’t need a big debt consolidation company to do this for you. If you are able to be approved for a loan, you can do this on your own.
2. You Can Reduce Your Payments by Half
Many debt consolidation companies advertise that they can get you a certain percentage off your debts. This isn’t true, because it all depends on what the creditor is willing to offer. Many debts are resolved with an offer in compromise, or the offer to pay a certain amount that is less than the total owed. Often, creditors will accept offers in compromise to reduce collection costs, However, they can choose what they accept and what they don’t. There’s no way to know before debt consolidation what a creditor will or will not be willing to do.
3. Debt Consolidation Is the Same As Credit Counseling
Credit counseling and debt consolidation are not the same. Debt consolidation is essentially buying your smaller debts with a bigger one. Credit counseling involves working with a specialist to develop a budget and learn how to better manage your finances to meet your financial obligations.
4. Debt Consolidation Will Save You Money
In some cases, the interest on a debt consolidation loan may be higher than the interest paid separately on the smaller debts. In some cases, debt consolidation can save money, but not always.
5. Debt Consolidation Is Better Than Bankruptcy
In many cases, bankruptcy can “wipe out” a person’s debt altogether. However, it still must be paid back with debt consolidation. For certain families, bankruptcy is the most effective way to get out from under crushing debt.
To learn more about debt consolidation and bankruptcy, and how bankruptcy may alleviate the financial challenges you face, contact the Law Office of Howard Tagg by calling (903) 730-6366.