As people enter into adult life and take on new responsibilities, finances can be one of the most intimidating and confusing things to deal with. Not only will financial rules vary from state to state, but you will have financial advisors telling you to do vastly different things with your money. For one reason or another, consumers find it hard to make smart financial decisions, yet the importance of these decisions cannot be overemphasized.
Learning the ins and outs of household finances and retirement planning is something that should be done early and often, however sometimes these lessons are only learned after one takes on too much debt.. A certified credit counselor is usually an expert at reviewing your financial decisions and making suggestions from there. He or she can take the mystery out of the complex world of finance help you make the right decisions for your future. Debt consolidation specialists will also allow you to get started online by offering a free debt analysis.
Before you start working with a financial planner or debt consolidation specialist, it is important to clear up some misconceptions.
Debt consolidation is not the same as a "debt settlement."
With debt consolidation you still pay back everything you owe in full. The only adjustment that is made is the amount of interest you pay on this debt, and that adjustment will reduce the monthly payments and allow you to pay it off without exceeding your monthly budget.
On the other hand, debt settlement means you only pay back a portion of the debt because you "settle" the debt with each creditor for less than what you owe. Any time a debt settlement occurs, expect to incur a seven year penalty on your credit report.
You can still consolidate debt with bad credit.
While some options for debt consolidation may require a strong credit rating, a debt management program is a form of debt consolidation that can be used even with poor credit scores. It is always worth considering a debt management program to get relief, especially if you believe that will prevent bankruptcy.
Debt consolidation will not damage your credit or cause credit penalties.
Neither a debt consolidation nor a debt management program will cause a credit penalty. These only occur when debts are not paid back on time or in full. Debt consolidation may adjust your schedule of payments, but as long as you make timely payments on that schedule you will not be penalized. In fact, if the debts are paid in full through a debt consolidation you may actually see your credit score improve.
Debt consolidation will not keep you in debt longer.
It's easy to believe that since debt consolidation reduces monthly payments it will take longer to pay them back, but just the opposite is true. Most people find they are free from debt faster with a debt consolidation than if they had paid back credit card companies in the traditional way, primarily because their interest rates have been reduced.
How does an interest rate reduction help? When the interest rate is reduced on your debt, it doesn't grow as fast with accumulated interest. Additionally, when a minimum payment schedule is set up in a debt consolidation it usually means the debt will be paid more efficiently than the schedule set up by creditors.