Bust 5 Myths of Consolidation Loans for More Confident Debt Management

Jenny Elmore By Jenny Elmore, 1st Feb 2018 | Follow this author | RSS Feed
Posted in Wikinut>Money>Loans

The consolidation of your loans is one of the potent tools to ease the debt burden. However, if raised with wrong expectations, it could prove fatal for your credit heath.

Bust 5 Myths of Consolidation Loans for More Confident Debt Management

Be it rolled over credit card bill or inability to repay home loan, unmanaged debts can hurt your credit profile beyond a repair. Whether you delay your loan repayments or make the late payments, they would equally hurt your score. They bring red flags in your credit report and stumble down your score. Bad credit score significantly hurts your future financial health.

The sooner you pay attention to your credit report, the better it is for your credit health. Many people take refuge in debt consolidation loans to mend their credit rating. However consolidation of loans is not a guaranteed solution to your credit woes.

Let’s find out 5 common mistakes people make while opting for debt consolidation. For, these are the common reasons for failure of most of the debt management plans.

Myth 1. Debt consolidation reduces the debt

Before you opt for debt consolidation loans for bad credit, it is important to understand how it works. As the name suggests, consolidation of loans is merging of your multiple credit accounts into a single umbrella loan which usually pays out for all other loans. You no longer are obliged to repay all loans as you have borrowed a single installment loan which is usually more affordable than previous loans. The lower installment is usually a result of longer duration of loan and not because of settled debt amount. Thus debt consolidation is a means to manage your loans and their repayment. It cannot reduce the debt you owe.

Myth 2. Debt consolidation would hurt score forever

When you consolidate your loans with poor credit score, an additional loan certainly hurts your credit score. But this change could be temporary. As you begin to repay the loan every month, your credit score would eventually improve. Thus it would be wrong to say that debt consolidation hurts your credit health.

Myth 3. Debt consolidation is for homeowners

Being a homeowner you can apply for a secured debt consolidation loan which is certainly cheaper than unsecured loans raised for the same purpose. Whether you own a home or live on rent, you can apply for debt consolidation loan. Unlike main-street lenders, a lot of private players are open to help bad credit borrowers improve their situation by extending flexible unsecured loans. It is a myth that one cannot raise a consolidation loan without a property.

Myth 4. I am dependent on my current lenders for consolidating my loans

You have no obligation to refinance or consolidate your loan with the current lender. It is one of the biggest myths. The entire purpose of consolidating loan would fail if you were restricted to borrow from the same lender. However there is no harm in enquiring with your current lenders if they have a better offer for you. Another convenient way to search for a deal is applying via a registered loan broker. They work as loan advisors and extend free consultation to borrowers as they work on commissions.

Myth 5. Debt consolidation is as good as bankruptcy

The fears regarding debt consolidation are rendered due to lack of knowledge among the borrowers. When you opt for bankruptcy you kill your credit worth and your assets are sold to fetch part payments to the lenders. However in case of debt consolidation, you are not settling any account. You are opting for a new loan and managing the repayments in a more organized form. Consolidating is thus not comparable to bankruptcy status in any form. In fact it could be said to be a way to save the financial doom towards bankruptcy.

Debunking these myths, I hope you could now look at debt consolidation as a practical tool to manage your accumulated debts. It takes a lot of financial prudence and will power to follow a debt management plan to success.


Business, Consolidation Loans Uk, Debt Consolidation Loans, Finance

Meet the author

author avatar Jenny Elmore
My name is Jenny Elmore.I am from London and currently working as a Financial Adviser at Best Unsecured Loans. My work here is to guide people in finding out the appropriate deals on unsecured loans a

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