The average person carries around $90,000 in consumer debt. Considering the median salary in the US is around $50,000 a year, that’s a huge amount of personal debt.
That probably helps explain why some people look at consolidated debt solutions as a means of getting that debt under control. Of course, many people never consider debt consolidation because of the myths surrounding it.
In order to help you make informed financial choices, we’re going to debunk some of the more common myths around consolidated debt solutions.
Debt Consolidation Cuts Down on Your Debt
Consolidation doesn’t reduce your overall debt. Instead, it shifts some or all of your debt into a debt consolidation loan. You still pay the full amount of the debt.
Where the best debt consolidation can help you save some money is on interest. If you go into the process with a good credit score, you can often get a much lower interest rate than you carry on your credit cards. This can save you money over time.
However, the final loan interest rate depends on your credit score, income, and other standard factors.
It Hurts Your Credit Score
There is a very small grain of truth at the center of this myth. Any loan application comes with a standard hard credit pull. Any hard pull on your credit history will ding your credit score.
In most cases, that ding will prove small relative to your overall score. You’ll quickly recoup those points with regular, on-time payments.
It Takes a Long Time
This myth probably finds its roots in the mortgage lending process. Getting a mortgage often proves a time-intensive process and can take up to 45 days in extreme cases.
Debt consolidation loans typically move a lot faster than that. Lenders often use online forms that let you upload all the necessary documents. Many loans get approved in a week or two.
Before applying for a loan, make sure you’re working with a Better Business Bureau accredited lender. You can get more information about that here.
Consolidation Creates More Debt
Consolidating your debt doesn’t create more debt by itself. It does clear balances from your other accounts. That creates a situation where you can accumulate more debt by buying more things with your credit cards.
Avoiding the pitfall of more debt means exercising some discipline over your spending habits.
Consolidated Debt Solutions Aren’t a Bad Thing
Most of the myths around consolidated debt solutions paint them as a bad thing or a solution with excessive problems. The reality is a little more nuanced.
Debt consolidation can create an opportunity for more debt, but it doesn’t cause it. It might ding your credit score, but it’s a minor ding. It’s not a time-intensive process.
The truth is that debt consolidation functions as a financial tool. When used properly, it can help people manage their finances more effectively. When not paired with some financial discipline, it can leave you open to future problems.
Want some more finance tips? Check out our Money section.
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