Consumers are back to borrowing heavily. This is because average credit card debt against every borrower rose up by almost 4.9% in the 1st quarter of 2013. The figure now stands at about $4,996 as validated by the credit reporting agency of the country, TransUnion.
Moreover, delinquency in payments has also risen in tandem with the growing outstanding balances. Currently, minimal consumer delinquency has touched 90 days. As a result, there is a rise in the rate of late payments from 0.71% (2012) to the present rate of 0.75% (2013).
As a result, consumers may have to opt for debt consolidation programs in order to repay their loans comfortably. However, the debt relief industry is rife with dozens of the misconception that prevent many struggling borrowers from opting for the debt relief programs.
Hence, it is extremely important for them to know about the fact behind the most common myths.
Myths # 1: Debt consolidation programs can help into save money.
Truth: Debt consolidation programs in no way can save debtors any amount of money since not a single loan is forgiven under this debt relief program. However, debtors can save money indirectly by lowering the rate of interest applied in their loans and avoid paying late or over-limit fees.
Myth # 2: Debt consolidation programs are similar to debt settlement programs.
Truth: Both debt settlement programs and debt consolidation programs are two totally different concepts. Under the debt consolidation program, debtors will be able to consolidate multiple outstanding balances into a single large loan. The loan will have low interest rate. On the other hand, debt settlement program involves a reduction in the principal amount owed by the creditors. People get confused with debt settlement programs because a part of the total loan gets deducted. However, debt settlement appears in the debtor’s credit report and adversely affects his credit rating. On the contrary, debt consolidation programs do not have any effect on the debtor’s credit score.
Myth # 3: Debt consolidation acts as an alternative to bankruptcy.
Truth: There is no doubt that debt consolidation programs are a great way to resolve one’s outstanding balances. However, this is not a ‘one size fits all’ solution for all the debt related issues. Instead, every person should analyze their financial need before opting for any sort of debt relief program. Therefore, people who in dire need of financial relief should opt for bankruptcy, depending upon their analysis of the situation.
Myth # 4: Debtors will have to stay in debt longer if they opt for debt consolidation programs.
Truth: This is not at all true. This is because due to lowered interest rate, and a single monthly payment, debtors can make extra payments every month. As a result, they’ll end up repaying their loans much faster.
Author Bio: The article is contributed by MJ, a regular writer of OVLG Law Group. She’s a financial expert and has expert tips to offer on debt related topics. At present she’s associated with various reputed financial websites and her articles are widely read. If you like the article, please visit us https://www.facebook.com/OVLGroup.