Debt Consolidation Myths

Myth [mith] – noun: a popular belief that is false or unsupported by facts.

Just like any industry, there are myths about debt consolidation. These “popular” beliefs are often false or unsupported by facts, and can lead consumers to make poor financial choices. Consolidated Credit Counseling Services wants to provide you the facts about debt consolidation and debt management programs so that you’re able to make a sound and informed decision on how to get out of credit card debt.

Myth: Debt consolidation saves everyone money.
Fact: That’s not always the case. Many consumers find that their monthly payments are less after joining a debt consolidation program. However, some individuals find that some programs, such as debt management, can cost more than their monthly minimum. However, even if the payments are the same or slightly higher, in most cases, consumers will get out of debt faster when using a debt consolidation program, because the majority of the payment goes toward the principal debt and not interest.

Myth: All debt management programs have the same effect on your credit score.
Fact: Different debt management programs have different effects on your credit score. Bankruptcy and debt settlement programs have a negative effect on your credit score. These debt management programs can affect your credit score for 5 to 10 years after you settled your debts or declared bankruptcy. Debt consolidation loans, such as a home equity or auto loan, won’t affect your credit score by themselves because the loan is used to payoff your credit cards, and you’re still carrying the same debt load. If you continue to make purchases with your credit cards after taking out the loan, you will increase your overall debt load and that could affect your credit score. Debt consolidation programs should not hurt your credit score.

Debt Management Myths

Myth: Credit counseling and debt consolidation are the same thing.
Fact: Credit counseling and debt consolidation are not the same thing. Credit counseling revolves around educating consumers on personal finances and budgeting. The FreedomQuest Debt Management Program is just one tool that Consolidated Credit Counseling Services can use to help you. A debt consolidation program combines your credit card debt into one monthly payment, and pays off your creditors. Once all the creditors are paid off, the accounts are closed. Even if you don’t join the FreedomQuest Debt Management Program, Consolidated’s credit counselors can still help.

Myth: Debt consolidation pays off your credit card debt.
Fact: A debt consolidation program is not a loan. Consolidated Credit Counseling Services does not work with banks; we work with your creditors to lower your interest rates and reduce monthly payments. The new interest rates are determined by your creditors, not the credit counseling agency you’re working with.

Myth: Debt consolidation reduces how much you owe your creditors.
Fact: Debt consolidation can lower your interest rates and monthly payments, but it does not reduce how much you owe your creditors. If you have $10,000 in credit card debt, you will pay off $10,000 in credit card debt over the course of the debt consolidation program. Because you’re paying back what you owe, a debt consolidation program doesn’t hurt your credit score like other debt management programs.

Myth: Debt settlement and debt consolidation are the same type of  debt management program.
Fact: Debt settlement and debt consolidation are not the same. While both programs have you send your payment to them; what they do with that payment is completely different. Debt settlement program holds your payments until your credit card accounts have been charged off and you have enough money saved to offer a settlement. Debt consolidation programs pay your creditors each month; none of your payments are held. Because your credit cards are charged off with debt settlement, your credit score can be negatively affected for five to seven years. Debt consolidation helps you pay your bills on time and can actually improve your credit score.

Myth: It’s easier to just declare bankruptcy.
Fact: Bankruptcy should only be considered after you’ve exhausted all other debt management programs. It’s your last resort, because out of all the debt management programs available, this option will have the most negative effect on your credit rating. Filing Chapter 7 bankruptcy (this wipes out all debt) stays on your credit history for 10 years. Chapter 13 bankruptcy (reorganize your debt) sticks with you for seven years, starting at the time you finish paying off the debt.   

Not sure which debt management program is right for you? Learn more about the FreedomQuest Debt Management Program and other debt management programs by calling 1-800-320-9929. A certified credit counselor from Consolidated Credit Counseling Services will provide you a free debt consultation and advise you which debt management program would best fit your financial situation.