Five Personal Debt Consolidation Myths

There are several different myths when it comes to personal debt consolidation. Today, it seems as though everyone is able to get a home equity loan to pay off their credit card debt and college loans, but with all the commercials advertising personal debt consolidation, it leaves you wondering what the catch is. Well, here are five myths to debt consolidation that you should be aware of:

1.   Credit Counseling vs. Debt Management Programs

Guess what - they're the same thing. Credit counselors help consumers learn to budget and learn to make disciplined and consistent payments. They teach you how to manage your debt and get out of it. Debt management programs (DMPs) is a tool that the credit counselor has. They take your monthly payment and distribute it to everyone that you owe until your debt is paid off.

2.   Credit Counselors will cut your monthly payments in half

Very rarely is this true and basically it's just a numbers game. If you miss two payments of $100, for example, then your third month you are going to owe $300. What the DMP will do is have you pay $100, so that it appears you are paying half a payment, when in reality the rest of the money you owe will be added to your total debt owed. You are basically putting off paying what you missed at a later date.

3.   Interest rates are lower at some companies than they are at others

This is basically an advertising tactic to pull people in and get them into the system. The advertisements that show low interest rates are misleading most individuals. The low interest rates that are advertised are reserved for those with excellent credit, A-list credit. The majority of the people who are drawn in by the advertisements are lower down on the credit spectrum and will end up with higher interest rates because of it.

4.   Some agencies can negotiate lower payments for personal debt consolidation

This may be true in some instances but what really ends up happening is that the individual pays a lump sum to a credit counselor who holds on to the money until creditors begin demanding payment. Your credit score is getting destroyed while they are doing this and then they negotiate to pay back your debt for pennies on the dollar.

5.   Debt Settlement is your cheaper option

Debt settlement is not your only option for personal debt consolidation; in fact, you should avoid this option at all costs. The debt settlement company simply holds onto your money until the creditors give up on getting paid. If you miss a payment to the debt settlement company, they keep all of the money you have paid them as a fee. In the mean time, the creditors are still sending you letters and you are still getting collection calls and your credit score is being maimed in the process because all of the letters and phone calls count against you even though you are in the program.

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