Most Californians have likely heard of debt consolidation, but they might not know what it is. There are also numerous myths about debt consolidation in California and finding the truth behind them can be difficult.
If you have two or more unsecured debts such as credit cards, medical bills, collection accounts, personal loans and others, then consolidating your debts would be ideal. Simply, this means taking these various types of debts and combining them into one single loan. You then make the single payment each month until the balance is paid off and you are free from your debt.
Here are some common myths about debt consolidation in California.
1. Debt consolidation is for people who are desperate.
Debt consolidation is for anyone who has two or more unsecured loans or credit cards who wants to pay them off more quickly. You do not have to be in desperate circumstances to benefit from debt consolidation. If you have several different types of qualifying unsecured debts, have good credit and simply want to save money and pay your debts off faster, debt consolidation may be a way for you to achieve your financial goals more quickly.
2. Debt consolidation will have a negative impact on your credit.
This is a very common myth about debt consolidation. While your credit score may dip slightly anytime that you take out a new loan, including a debt consolidation loan, any drop that you might experience will likely be both temporary and minor. Debt consolidation may end up helping your score if you are transferring your revolving credit accounts to an installment account. Also, as you make your payments on time and in-full, you will be improving your credit.
3. Debt consolidation causes you to have more debt.
Debt consolidation that is done correctly causes your debt to drop rather than increase. In order for your debt to go up, you have to spend. When you consolidate your debt at a lower interest rate, your total monthly payment amount is smaller. You can then choose to use the extra money to repay your debt consolidation loan faster if you want by paying it towards your loan as well. However, if you use the extra money in an unwise manner, you may cause your total debt balance to grow because of poor spending habits.
4. Debt consolidation will be easy.
Debt consolidation requires that you exercise discipline. While your payments may be less than what you have been paying, you will still need to avoid slipping into bad spending habits. You should stop accumulating new credit card debts and other types of unsecured debts while you are repaying your consolidated debts. By the time that you have achieved freedom from your debts, you may have established a new relationship to spending. Then you can continue budgeting your money wisely in the future instead of allowing your debt to balloon again.
5. It’s better to take out a home equity loan or a second mortgage.
This myth about debt consolidation is related to another myth that you have to own your own home to qualify for debt consolidation. While taking out a home equity loan or a second mortgage may allow you to use the proceeds to pay off your unsecured debts, it is not a good idea. If you are unable to make your payments down the road, you may lose your home to foreclosure. Many people who take out home equity loans to consolidate their debts also find that their spending habits don’t change. This may leave them with the second mortgage payment as well as new credit card and other unsecured debt balances.
People who do not own their own homes may qualify for debt consolidation. Homeowners may be better served by working with a debt counseling agency that assists people with consolidating their debts rather than taking out second mortgages on their homes.
6. Debt consolidation will solve all of your financial problems.
This is not true. In most cases, people who get into trouble with ballooning debt have financial problems because of the way in which they handle money rather than because of the debts themselves. If you have had trouble handling money in the past, your debt may balloon again if you do not address your bad spending habits.
On the other hand, some people also have debts that build because of unexpected emergencies such as illnesses. If you have always handled money well but need to consolidate debts that arose from an emergency situation, debt consolidation in California may solve most of your financial problems.
7. All debt consolidation companies are scams
While there are some shady businesses that claim to offer debt consolidation help out there, not all companies that help people to consolidate their debts are scam artists. You can research the company that you are considering to see if they are the right fit for you. If the company asks for a large amount of money as an upfront payment, this is a red flag. If a debt consolidation company asks you for that, go somewhere else. There are reputable debt consolidation companies out there that have helped countless people find freedom from their debts.
Debt consolidation in California can offer relief to people who are struggling under the weight of multiple unsecured loans. Christian Debt Counselors is able to help our clients to consolidate their credit card debt, personal loans, past-due medical bills, collection accounts and other unsecured debts. We are able to help people with nearly any type of debt other than car loans or mortgages. To learn more, call us today.