Busting the Myths of Debt Consolidation

With more and more people looking at ways to reduce their financial outgoings, debt consolidation has become an increasingly popular option.

Debt consolidation loans have been recommended as a good way to repackage a selection of smaller debts – often with high interest rates – into a more unified and cheaper single monthly payment. However, many people are still confused about the process, which is why the Personal Finance site recently published a guide to confounding some of the most widespread myths about debt consolidation.

The first ‘myth’ to be tackled is the idea that only professionals can carry out debt consolidation – in fact, most consumers can work out the technicalities themselves, it said. Why pay fees to an advisor when the basic steps, such as working out which debts are the most expensive and obtaining one’s credit report can easily be done oneself?

The second myth is that bad credit ratings cannot be improved. Personal Finance said that there are many ways to boost a rating, such as repaying smaller personal loans and not repeatedly applying to lenders who have turned you down in the past. There are also lenders who specialise in bad credit loans, which can help put finances back on an even keel.

The guide also pointed out that there are three major credit reporting agencies, not just one, so it often helps to find out which agency a certain lender uses when assessing personal loan applications, as ratings can vary between agencies by up to 50 points. Finally, it is important to be aware that credit ratings are not damaged just by checking them, so this should not put off anyone interested in debt consolidation.