Nickel Advisors has begun flooding the market with debt consolidation and credit card relief in the mail. The problem is that the terms and conditions are at the very least confusing, and possibly even suspect. The interest rates are so low that you would have to have near-perfect credit to be approved for one of their offers. Best 2020 Reviews, the personal finance review site, has been following Nickel Advisors, Coral Funding, Neon Funding, Ladder Advisors (also known as Carina Advisors, Corey Advisors, Pennon Partners, Jayhawk Advisors, Clay Advisors, Colony Associates, and Pine Advisors, etc.).
Debt elimination often feels like a legend, with so much advice and programs floating around. It becomes challenging to identify solutions that actually work in your best interest in the excruciating journey of paying off debt.
Debt consolidation is one of the most widely used methods to overcome the debt crisis. It’s common for debtors to take a personal loan to consolidate all their debt. Debt consolidation allows you to amalgamate all your bills and loans into a single amount, which has a lower interest cost and allows you to pay off your debt quicker.
It is a method that has delivered concrete results and has been tried and tested by many over a long period. But with its benefits also come a few common misconceptions regarding the use of this method to pay off debt. Many people often misunderstand how much the process could cost, and long does it usually last.
If you want to avoid falling in the trap of these myths, then we are going to bust them for you here. Check out the five most common myths associated with debt consolidation, and also find out what’s really the truth.
Debt Consolidation Myth No. 1: It reduces your debt
The most common myth associated with debt consolidation is that it reduces the amount of your overall debt. However, that’s not how debt consolidation functions.
The truth: Getting rid of your debt with debt consolidation, be it credit card or student loans, doesn’t reduce or forgive the amount of your total debt. On the contrary, it just combines all your loans into one, and then you are required to make a single monthly payment towards that amount.
The reason for the propagation of this myth is probably confusing debt consolidation with a debt relief method called debt settlement. Debt settlement allows the debtor to hire a debt settlement representative, who will negotiate with your creditors to reduce the amount of your debt on your behalf. Debt settlement may sound lucrative at first glance, but it costs a lot and can damage your credit score. It also takes a long time to show results, so you need to be completely sure when you opt for it.
Debt Consolidation Myth No. 2: Your interest rate will always be reduced
Although debt consolidation is often marketed as a way to lower your interest rate on loans, it’s not always the case.
The truth: Debt consolidation often reduces your interest rate if you have average credit. However, your interest cost could also increase if you want to extend your repayment term. For instance, if you owe a credit card debt worth $20,000 with a 15% annual percentage rate, and $600 monthly payments, your total cost of payment would go up to $25,800. Plus, it will take you three and a half years to pay it all off.
If you decide to consolidate this debt using a personal loan with a 10% APR and the repayment term of seven years, your monthly payments would now be worth $332. However, the total amount of payment would go up to $27,890.
This method reduces your monthly payment amount, which could help your cash flow. But in the long run, you’ll be paying much more on interest, and it will take you longer to pay off the debt.
Debt Consolidation Myth No. 3: It damages your credit score
Again, people confuse debt consolidation with debt settlement and assume that it would surely hurt their credit score. However, that’s not really the case.
The truth: A hard credit pull is usually required when you apply for a debt consolidation loan. But it only takes away a few points from your score, which doesn’t make a significant difference. Additionally, if consolidating your loan allows you to make your monthly payments on time, and eventually pay off your debt, your credit score will receive a massive boost. On-time payments make up to 25% of FICO credit scores. Therefore, a small loss in points in the early days could prove worth it if debt consolidation facilitates your monthly payment ability.
Debt Consolidation Myth No. 4: It costs a lot
Although the interest rate offered on debt consolidation loans varies from lender to lender, it’s mostly lower than the interest on credit card loans.
The truth: If you have an excellent credit score, the interest rate on your debt consolidation loan can be as low as 6%. Some debt consolidation loans don’t charge any extra fee, and often the interest is the only cost you pay. Some lenders might charge a one-time origination fee, but it’s only to process your loan or checks. Lenders also don’t usually charge a fee for paying off your loan early.
Debt Consolidation Myth No.5: It takes a lot of time
It’s also a common belief that the time to process debt consolidation loan is very long, but that’s just not the reality.
The truth: Almost all debt consolidation loan applications are online today. The online process lets you apply and submit the required documents on a secure online portal. The whole process only takes a few days to the maximum of one week. You receive funding within a week during this process. The process is very straight forward, and there’s a minimum to no back and forth with the lender, especially if you apply with full preparation and have all your documents at hand.
Which lender would be the best option for you?
We reviewed dozens of lenders to help you choose the right one. Take a look at the list given below according to different situations:
- If you have fair credit and want to pay off your credit card loans, then choose Payoff.
- If you have good credit and don’t want to pay any extra fee, go with Marcus by Goldman Sachs.
- If you have good credit, then LightStream offers low rates.
- If you have fair credit and want to make direct payments to your creditors, then Upgrade would be a perfect choice.
- If you have bad credit and require quick funding, then Avant is the one for you.
- If you have good credit and want flexibility in payment options, then go with Discover.
Debt consolidation is an excellent option to pursue debt elimination if you understand all that it entails. Make sure to always do your research before believing any popular opinions and myths.