Truths and myths about debt reduction

As more and more debt-ridden people are now seeking debt reduction for relief, the spread of myths and misconceptions about loan reduction has also started increasing. For the debtor, it is necessary to understand what the truths are and to dispel those myths and misconceptions for his/her own benefit.

No home ownership required!

The first of the misconceptions involves home ownership. Contrary to popular belief, you do not require to own a home to be eligible for debt reduction. Debt reduction means a service, and not a loan; so it does not ask for any collateral while reducing your debt and helping you avoid bankruptcy. Again, debt reduction has little to do with consolidation of your debts and lowering your interest rates, as many people wrongly believe. Credit counseling companies provide such service, but debt reduction programs are mainly meant for reducing the actual amount you owe.

Effect on credit score

It is also very important to know that in spite of FICO’s assurance that joining a debt management program does not have any adverse effect on your credit score, most lending organizations act differently. (FICO is the company responsible for the most common credit scoring service). In fact, some lenders go to the extent of comparing the effect of credit counseling on your credit as equivalent to a Chapter 13 bankruptcy filing. There is another prevalent myth that the adverse effect of a debt reduction on your credit can never be erased. The truth is, eliminating the debt will give a great boost to your debt to income ratio, one of the most important determining factors for your credit-worthiness. In addition, once you show positive payment history on completion of your debt reduction program, you will no longer have to worry for credit in the future.

Common sense and hard work

There are some people who think that only the rich have the ability to become debt free. This belief is totally wrong. In reality, anyone can get freedom from debt. Debt reduction is essentially a lot of common sense and hard work. Those who are sincere and hard working have every chance of becoming debt free with the help of debt reduction. You must be ready to work hard and sacrifice in order to fix the situations for which you have only yourself to blame. So, a debt reduction program can help you to get rid of your unsecured debts, unsecured loans, credit cards debt and past due bills etc.