This website is designed to help you learn more about debt consolidation, so that you can make a good decision with your finances and find the financial relief that you are looking for! Read the information on this page to decide if consolidation is the right choice for you.

Myth: Debt consolidation is a get-out-of-jail free card for your finances.

Fact: Debt consolidation is a tool that can be used to help you pay down your credit cards and loans in order to return to a better financial situation.

Some people view debt consolidation as the magic solution to fix all of their financial problems, and although it is a tool that can help with your finances– there are also other financial factors that need to be considered. The truth is that consolidating debt doesn’t take away your financial burden, but it does help by restructuring the balances so that you are more likely to succeed in paying off your debts.

What is Debt Consolidation?

When you take out a debt consolidation loan, it is one bigger loan that is designed to pay off the balances of all of your other outstanding balances. These types of loans can be used to get rid of credit cards, medical bills, or any other type of balance that you owe. The consolidation loan pays off your debtor, resulting in 1 easy payment for you to make each month.

One big advantage to using a consolidation loan to pay down your debts, is that fact that some of the consolidation companies actually work to negotiate down the balances on your outstanding debts. They will contact the credit card company or the company that you owe money to, and negotiate a fast pay-off… and many companies will settle for a smaller amount in order to reduce the risk of losing all of the debt money to bankruptcy.

Myth: Debt consolidation is the best way to get out of debt.

Fact: Sometimes, debt consolidation isn’t the best solution– it depends.

If a person finds themselves up to their eyeballs in debt, then they may be tempted to consolidate everything because that seems like an easy way out. But, there are costs and drawbacks to paying off debt this way, so it is important that you take the time to consider all of your options before making the decision.

The situations that usually merit consolidation are usually when a person is faced with so many debt payments that they are unable to meet the minimums each month. This situation usually results in missed payments, late fees, and high amounts of interest costs. Also, it can turn into a very stressful situation if the debt collectors begin calling, because the person most likely doesn’t have any cash to meet the payments that are required.

When a person finds themselves leveraged in this much debt, then it is a good idea to consider consolidation options. A debt consolidation loan will pay off all of the outstanding debts, so you will no longer have to worry about the late fees and debt collectors for those individual balances. Instead, the debt consolidation company will own your debt, and you will need to send them a payment each month until the balance is paid off.

The consolidation company will still be making money on the loan. Sometimes they charge a flat fee for the consolidation loan setup, and they will be profiting from the interests costs of your unpaid balance. But, these fees can be cheaper than leaving the balances with the other debtors.

For example, if you have a credit card balance that is over the limit of the card, and it has an interest rate of 18%… then you are getting hit with a lot of extra costs. The credit card company is likely charging your late fees every time a payment is missed, extra fees since your balance is higher than the limit of the card, and 18% interest! Some people have multiple credits cards in this situation, and they choose to roll the cards into a debt consolidation loan– which will lower their interest rate and get rid of the fees that are added on each month.

Myth: If you are considering consolidation, then a secured debt consolidation loan is the best answer.

Fact: There are benefits to both secured debt consolidation loans and unsecured debt consolidation loans, so you should consider both options.

A secured debt consolidation loan involves providing collateral for the debt. So, if you get a secured loan, you will need to have an asset to offer, such as a home. By offering your home as collateral, it often results in a lower interest rate, but you may be at risk of losing your home if the debt is not paid off. If the consolidation loan needs to be paid back, then a forced sale of the home will occur to pay off the balance.

On the other hand, an unsecured debt consolidation loan doesn’t require any type of collateral. But, the unsecured loan is often more expensive because it has a higher interest rate. The advantage of an unsecured loan is that you are not risking an asset such as your home. But, the disadvantage is that most financial institutions prefer offering secured loans– so they may deny your loan application for an unsecured loan.

If you are thinking about consolidating your debt, then the best option is to talk with a financial advisor in order to determine the best course of action for your individual financial situation. They will help you to determine if an unsecured or a secured debt consolidation loan is better for you.

Another way to find the best option is by contacting multiple consolidation companies to see what types of loans they can offer you. Getting information about multiple debt consolidation loans will help you to see all of the choices that are available, so that you can be sure that you are making the best decision for your financial future.

Myth: Student loan debt consolidation is better than credit card debt consolidation.

Fact: Both types of debt consolidation can be a good option for your financial situation.

Student loan debt consolidation is a common type of consolidation loan to get, because many people have multiple loans after they graduate from college. In fact, it is common for student loans to be issued on a semester or yearly basis, which means that there are multiple loans that need to be paid on every month. Sometimes the interest rates are lower on some loans compared with others, and consolidating student loans into 1 loan payment may make it easier and faster to pay back as a result of lower interest.

But, it is necessary to first consider the balances and interest rates of your student loans in order to determine if consolidation would be beneficial for your loans. Sometimes student loans have very low interest rates, and if you have college loans that are only 2% – 7% interest then it may be better to stick with those interest rates– because a consolidation loan will likely have higher interest rates.

In comparison, it is almost always beneficial to use credit card debt consolidation if you have a lot of credit card balances that need to be paid off… because those interest rates are usually high. Credit cards can quickly run away from you, resulting in balances that keep getting higher and are difficult to pay back.

Some people actually choose to get two consolidation loans: one for their credit cards and one for their student loans. Or they may choose to consolidation their credit cards, and leave the student loans at the lower interest rates in the original loans. Every situation is different, so it is important that you take the time to consider all of the factors relating to your financial situation in order to determine the best pathway forward.

Myth: I don’t need to worry about my finances after debt consolidation.

Fact: If you get a debt consolidation loan, it is important that you change your daily spending habits.

Remember, that a debt consolidation loan is not the end solution for your finances… in fact it is an effective fix for the root problem: over spending. It is common for someone to consolidate their debts, only to find themselves in a situation where they rack up a lot of debt again because they have overspent.

If you take the time and effort to consolidate your debts, then it is important that you work hard to change you daily spending habits and avoid any form of debt. Don’t get new credit cards, don’t spend money of frivolous things, and don’t live your life without budgeting.

Instead, it is better to focus on saving as much money as possible by cutting back on your spending. Use the extra money that is saved by paying down your debt consolidation loan even faster. Keep in mind that the faster you pay off the debt, the less money you will have to spend in interest costs. So, it is much better to pay down the debt as quickly as possible in order to decrease the overall amount that you have to pay off.

Certain sacrifices will need to be made. For example, consider making changes in your lifestyle such as renting a movie instead of going to the theater as soon as each new movie comes out. Or, you might start brewing your own coffee at home in the morning, instead of spend $5 every day for a cup of coffee at the shop down the street. These little changes can really add up, and every extra dollar paid to the loan now will get you closer to financial freedom.

Myth: Bankruptcy is always better than debt consolidation.

Fact: Both bankruptcy and debt consolidation can be good tools, but there are different benefits to each option.

Bankruptcy is another option that can be considered if you are trying to get out of debt. But, the truth is that bankruptcy is often the choice that should be used if you have no other alternative. Bankruptcy will result in a lot of damage to your credit score, as well as a number of other negative side effects.

Some people want to choose bankruptcy over debt consolidation because of the fact that they want to get rid of debt without paying it back. Certain types of bankruptcy (such as Chapter 7 bankruptcy) will wipe out debt for you, but it will stay on your credit history for a long time– for 10 years your credit score will be negatively impacted by the bankruptcy filing.

On the other hand, Chapter 13 bankruptcy might be considered, and this type of bankruptcy filing actually reorganizes your debts. Chapter 13 will stay on your credit history for 7 years (after the debt has been paid off), so it will still have a negative impact on your credit score.

If you are considering Chapter 13 bankruptcy, then it might be better to simple use a debt consolidation loan in order to have less of an impact on your credit score. There are times when debt consolidation can still negatively impact your credit score, but it probably won’t be as bad as bankruptcy. Consider how much debt you have to pay off, and then talk with a debt professional such as a credit counselor or a financial advisor in order to debt if bankruptcy or debt consolidation is better for you.