Debt consolidation can provide consumers with a beneficial means for getting out of debt or taking control of their debts, but there is a lot of misinformation regarding this process currently in circulation. You cannot truly know whether debt consolidation is for you or not if you do not take time to understand how it works and how it may help you in your particular situation. Putting some of the myths surrounding debt consolidation to bed once and for all can help you to decide if you should look into it or not.
Debt Consolidation is a Scam: Partial Myth
To say that debt consolidation is a total scam would be a fallacy, but there are some scams out there. Most scams can be detected by doing a BBB check of the company. If there are fishy reports about the company, chances are good that you should run the other way. There are some truly good companies out there, too, that can help you determine if debt consolidation will work for your situation, and that will do their best to get you back on track.
Your Payments Will Be Cut in Half: Complete Myth
This marketing myth is one that really hurts the debt consolidation industry more than it helps it, since most consumers are smart enough to know that you can’t take $100K in debts and have it magically cut in half just because you consolidate your debt. It doesn’t work that way, although it is commonly marketed in just that same way. In only a tiny fraction of instances has this ever actually happened! It is possible, however, to have your debt “re-aged” which basically involved having some of the interest charges, late payments, and so on, reduced, or “aged” back to a time before you started missing payments.
Debt Management is Debt Consolidation: Again, Myth
Debt management programs are not the same as debt consolidation programs. What a debt management program essentially does is figure up how much money you owe to your creditors each month and ask you to pay that money to them in one lump sum payment, sort of like a young adult who is asking their mom to manage their funds for them. They turn around and pay your creditors on your behalf. Debt consolidation, by contrast, involves rolling your debt into one large debt that is paid off in full by a consolidation loan. You then pay the monthly loan payment each month to the lender.
Bankruptcy Will Destroy Your Life: Myth (At Least Sort Of)
Many companies will try their hardest to sell you on debt consolidation, and make bankruptcy seem more like dropping the bomb on Hiroshima than admitting failure and looking for a fresh start. Bankruptcy does put a black mark on your credit record that creditors interpret as your willingness to walk away from your responsibilities. The truth is that bankruptcy is a big deal, but it sometimes the only alternative to get out of a huge financial mess. When debt consolidation will not alleviate enough of a financial burden, bankruptcy is the next viable option.
About the Author: Mike Smith is a mortgage broker and avid blogger for Home Base Mortgages. HBM is a Toronto mortgage broker that provides home mortgages, mortgage refinancing, home equity loans, debt consolidation, private mortgages and second mortgages. You can visit their website at http://www.homebasemortgages.ca/