Debt Consolidation Myths

The Internet is steeped in misinformation about how to consolidate debt. We'll dispel a few of the most common myths about consolidation here.

Myth 1: Consolidate Debt Loans Are Easy to Obtain

The online debt consolidation industry tends to minimize the difficulty of securing debt consolidation loans. Indeed, some sites even go so far as to say that obtaining hard-money consolidation loans is easy. In reality, most debtors will find affordable debt consolidation loans almost impossible to obtain. Most people who struggle with debt also have serious credit challenges, making them a poor risk for lenders. As a result, many consumers will get turned down for consolidation loans. On the off chance that they are approved, the lender will likely charge them higher interest rates than they currently pay on existing high-interest debts.

Myth 2: Debt Consolidation Services Are Free

Sadly, there really is no such thing as free debt consolidation. Of course, depending on what type of debt consolidation industry service you use, some methods will cost less than others, but you will always pay something to consolidate debt. Debt consolidation loans are commonly misrepresented as free, but these loans still have fees, interest, and other charges that borrowers must pay. Likewise, professional debt consolidation services also have significant costs involved. With most consolidation companies, members must pay a commission fee in addition to periodic administrative fees.

Myth 3: Balance Transfers Are a Valid Form of Consolidation

Balance transfers are a quick fix that might buy you some time, but they will do little more than that. Transferring high-interest debt to cards with better rates will only work in the short term to consolidate debt. In order for a balance transfer to be effective, you must pay the balance off before the promotional balance-transfer rate expires. Moreover, balance transfers always have fees associated with them that are typically expressed as a percentage of the amount transferred. If you are moving a large balance, the transfer could be quite costly.

Myth 4: The Debt Consolidation Industry Is Non-Profit

Consumers often conflate debt consolidation services with credit counseling agencies, but these two entities are drastically different. The vast majority of companies in the debt consolidation industry are for-profit companies that work on commission. On the other hand, consumer credit counseling agencies are usually non-profit organizations that charge their clients little or no fee. If you would like inexpensive advice on debt and credit management, look for non-profit consumer credit counseling agencies in your area. Remember that credit counselors cannot help you consolidate debt; rather, they are there to offer guidance to debt-laden consumers.