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There are many myths about debt consolidation, and most are false. We have asked Yarbrough to share the most common with us so we can dispel them.
Myth # 1: Debt consolidation affect my credit score
Whenever you apply for new credit, your score may go down temporarily. However, this is perfectly normal and only occurs if you frequently ask for credit. Therefore, the contraction of a debt consolidation loan will not be more detrimental to your credit score than any other kind of loan. In fact, consolidation could even help improve your score. That is, through a consolidation loan, you will be able to repay all your outstanding debts and focus only on the repayment of your only debt consolidation loan, which will simplify your payment schedule and help you get the most out of your debt consolidation loan. respect. Over time, this will have a positive impact on your payment history. You will also reduce the amount of your debt, which will help improve your score.
Do you know what has an impact on your credit score? Factors such as the length of your credit history, your payment history, and the use of credit all affect your credit report.
Myth # 2: Debt consolidation is the same as the debt settlement
Consolidation and settlement of debts are often wrongly considered as the same thing. However, these are two entirely different concepts. In fact, debt consolidation involves taking out a new loan to repay outstanding debts. The person then reimburses the consolidation loan, whose interest rate is generally lower, or whose payment schedule is simplified. Debt settlement, on the other hand, involves negotiating with creditors. The goal is to convince creditors to cancel part or all of debt. The debt settlement process typically involves the involvement of lawyers or a third party company that negotiates with creditors on behalf of the debtor.
Debt settlement sometimes appears on the credit report, which can make it difficult to obtain credit or loans later. Indeed, if the future lenders find the presence of a debt settlement in your credit report, they will know that a portion of your debts has been canceled, which will make you, from their point of view, a borrower to high risk.
Myth # 3: Debt consolidation is an option of last resort
Debt consolidation is actually a very proactive way of managing your debts. Many people choose to consolidate their debts well before considering options such as debt settlement, consumer proposal or bankruptcy. Some people even consolidate debts of as little as a few thousand dollars. This is a simple method of creating only one payment schedule and saving money by getting a lower interest rate.
Myth # 4: Debt consolidation is for people with bad credit score
Debt consolidation can certainly be beneficial for people with bad credit scores, offering them the chance to reduce their debt and improve their payment history. However, it offers benefits to many people, even those whose credit score is perfect. Whether you have a good credit score or a bad credit score, a simplified payment schedule and a lower interest rate can only help you.
Myth # 5: You must own to resort to debt consolidation
Many homeowners refinance their mortgages to pay off debts or take out a secured personal loan to get a lower interest rate. Although owning a property can give you access to better rates and more money, it is not necessary for debt consolidation. Yarbrough offers both secured and unsecured debt consolidation loans to give people who do not own property the chance to consolidate their debts.
Most people assume that debt consolidation is negative in nature, but this is not necessarily the case. It’s a proactive way to manage your finances and help you get back on track for financial freedom.