Some Debt Consolidation Myths & Truths for Single Moms to Know Before Opting for It
Single moms are often compelled by circumstances to opt for loans. As they are already overburdened with a plethora of bills and payments, they may miss payments and start accumulating debts until they reach a point when debt consolidation could be their only savior. Debt consolidation is known to exist because it proves to be quite beneficial to the lenders. But debt consolidation is pretty popular simply because more often than not, it is really beneficial to the borrowers. When you find that debt consolidation loans, debt management programs, balance transfers, and even mortgage refinances are mutually advantageous, they would be an excellent way of restoring your financial status.
In this context, let us explore some mind-boggling statistics that should reveal the plight of single income families headed by single mothers. “It’s estimated that total child-rearing expenses from birth to age 17 for a middle-income American family is now $233,610. Although the range of expenses across families is wide, the truth is that adding a little one to the family is quite expensive.” These interesting statistics presented by https://www.forbes.com, further reveal the pressure every single mom has to go through to maintain her family. So often, they are grappling with never-ending debts. It is at this juncture; they often look for a respite and opt for debt consolidation.
One of the main benefits of opting for debt consolidation would be the breathing space provided by it. By rolling multiple small payments into one big fixed payment, you may identify some free space in your budget. If you consider that breathing space as a golden opportunity to keep stretching your expenses and go on paying for your wants and not just your needs, you would soon end up with no more breathing space and you would not be able to stick to the budget. You must opt for debt consolidation only after you know all the myths and facts associated with the process. Let us explore some common debt consolidation myths and understand reality.
Myth: Debt Consolidation Guarantees Freedom from Debt
Truth: Debt consolidation could be an effective way of reducing what you have been paying so far in terms of fees and interests, making it a lot simpler to manage your single repayment every month. However, if you are still making fresh purchases using your credit card, your debt balance would never go down and you would perpetually be in debts. So debt consolidation could help you in dramatically reducing your debt but you have to take proactive steps and make certain lifestyle modifications to steer clear of debts in the future. Go through debt consolidation feedback from customers before making the final decision.
Myth: Debt Management Plans & Debt Consolidation Are Same
Truth: Debt Management Plans & Debt Consolidation is similar but has certain key differences. When you are consolidating debts, you would be taking out a personal loan from a credit union or a bank and use it towards paying your creditors via one monthly repayment.
Debt Management Plans operate in a slightly different way. The process involves no loans. You would still be having a single monthly repayment but it would be toward a program provided by your credit counseling agency. Under DMPS, the credit counselor is supposed to calculate an appropriate monthly payment amount that is affordable for the borrower and accordingly decide how long it would be taking to repay the entire debt. In this case, the borrower is supposed to send the fixed monthly payment to his credit counseling agency and then the agency would be distributing the money to each and every creditor.
The amount had been predetermined and agreed upon so that the debt is paid down quickest possible. In this context, you must remember that since credit counseling agencies operate with creditors all the time, there are certain agreements between them for ensuring lower interest rates and waiving penalties.
Myth: Debt Consolidation Would Culminate In More Debt
Truth: Debt consolidation does not lead to more debts but it can wipe up all your debts provided you have identified the root cause of your debt issue and that you are consciously trying your best to make and follow certain lifestyle changes. If you do not make the necessary changes in your spending behavior or buying habits, you could again fall in deep trouble. Debt management plans would be necessitating credit counseling that is effectively designed for curbing that trend. You could accomplish the same with debt consolidation when done on an individual basis as well. You have access to a host of tools and apps online that would be assisting you in creating a budget and providing relevant information about critical financial practices such as establishing a robust emergency fund. Remember the secret to staying debt-free is improving your financial literacy. A sound knowledge about financial concepts could help you make the right decisions and stay debt-free in the future.
Myth: Debt Consolidation Would Damage Your Credit Score
Truth: As you make the repayments timely and without missing any, your credit file would be repaired and restored and obviously, your credit score would go up. In this connection, you must understand that the two key factors attributing to a credit score usually are credit utilization and payment history. During the initial stages after debt consolidation, your credit score could experience a slight fall either because you have closed the existing accounts or you have opened a fresh new credit. However, this would be recovering super-quickly and would be shooting up as you go on making timely debt repayments every month.
You may not be worried excessively about the initial fall as you are not supposed to be there in the market for adding a fresh new credit line while you are already in debt. You must understand that it is far more critical to observe what happens to your credit score when debt consolidation process comes to an end. Remember whether you are opting for a debt management plan or a debt consolidation loan, your credit score would be enhanced greatly once you are debt-free.
Conclusion
You must not opt for debt consolidation hoping it to be a one-stop quick fix for all your financial issues and worries. Remember if you do not manage effectively all your bad money spending behaviors and buying habits and if you are not successful in maintaining strictly a healthy budget, it is possible that debt consolidation would be delaying your financial issues. Instead, identify and concentrate on the root cause of the issues that culminated in you taking out a debt consolidation loan. When you have effectively addressed the root cause, debt consolidation would then be the best tool for you.
