If you are considering debt consolidation, you may be bombarded by the promises of advertisers, and overwhelmed by the variety of options available to you. It’s important to be able to see through the spin of money-hungry businesses and the misrepresentation of debt consolidation packages. There are a few prominent debt consolidation myths and perceptions floating around out there. Knowing fact from fiction will help you make an informed decision about whether debt consolidation is right for you, and what you can rightfully expect from the process.
One of the biggest misrepresentations in the world of debt consolidation is that credit counseling and debt management are the same thing. This is incorrect. Credit counseling is education – it is meant to help consumers develop a plan to get themselves out of debt, otherwise unassisted. Debt management programs (DMPs) are “police” over your credit payments, taking a lump sum you give them every month, and distributing it between your various debtors. Interestingly, experts estimate that only 35% of consumers seeking credit counseling can benefit from a DMP. Heavily in-debt consumers may not realize that DMPs do not reduce their balances owed or rate of interest – they merely redistribute payments and, occasionally, re-age an account to reduce past-due accounts by adding the amount to the back end of the balance.
Debt consolidation is not a magic wand by any means. It takes active participation and discipline on the consumer’s end to fully realize any benefits of credit counseling or a DMP. Knowing your options is a crucial part of starting the process of conquering your debt. Careful research is a must, as is taking the promises of advertisers with a grain of salt. ■
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