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The Top 5 Debt Consolidation Myths of 2009

[Apr 20, 2009.]

 

Credit counseling versus debt management? Introductory versus tiered APR? Credit rating versus FICO score? Unfortunately for most, these financial concepts are all too unclear. And when it comes to debt consolidation, the picture becomes even muddier. Here’s five of the prevailing debt consolidation loan myths debunked for your fiscal pleasure.

Myth #1: Most consumers know the basic debt concepts.
Although they should, many people just don’t take the time to figure out what they should know about their accounts. According to MortgageLoan.com, a new survey from Opinion Research Corporation for the Center for Economic and Entrepreneurial Literacy reveals many consumers are in the dark about debt consolidation.

Be aware: Several respondents admitted to making poor to very poor choices when it came to debt management.

Myth #2: The government can’t help you consolidate your debt.
It’s called a federal grant for credit card debt. It can be your saving grace if you fell within the parameters of regulation. Money and Minds reveals that there are a wide variety of needs-based government grants that you can use to pay off existing credit card debt. You must find the proper agencies and provide them with paperwork.

Be aware: Visit CFDA.gov and Grants.gov, two government web sites for detailed information on federal debt consolidation loans.

Myth #3: Credit counseling and debt management programs are the same.
This myth puts a lot of consumers in a real bind. Bankrate.com identifies credit counseling as third-party assistance to get borrowers on the track toward financial freedom. Debt management, however, is one of the processes credit counselors use to make the comeback happen for borrowers.

Be aware: Less than 35 percent of consumers who attend credit counseling can truly benefit from a debt management program.

Myth #4: Credit counselors can reduce your monthly payments or total debts by 50 percent.
This just doesn’t happen. Money owed is money owed and anything less than a full repayment requires a court order and damages your credit rating. Credit counselors might be able to extend the terms of your repayment by negotiating with lenders, but rarely if ever can they get monies owed forgiven.

Be aware: There is the possibility of a reduction in the interest rate on a particular account, so ask for one as needed.

Myth #5: Bankruptcy is never the right call to make under any circumstances.
This is juts not true. For those who have had their salaries reduced, been laid off or experience some other personal crisis, bankruptcy may be the only way out. Yes, it damages your credit rating. Yes, you can’t borrow on credit for seven to ten years. But in many instances, bankruptcy allows you to keep your home and car, avoiding foreclosure.

Be aware: If you do declare bankruptcy, lying about it on any future application (for credit or a job) might draw serious consequences.

 

About Author:

Kelly Richardson is a freelance writer, marcomm consultant and digital entrepreneur. He’s written content for Fortune 500s Google, Yahoo!, Microsoft and Wells Fargo. Find out more about him at kellyrichardsoncopywriting.com.

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