Debt and loan consolidation is the process of taking some or all of your debt and putting it all together. Many people use consolidation for various reasons and there are different ways to do it. During the home refinancing boom of the mid-2000s, many people refinanced all of their debt into their home loans. The idea was that they could take their high-interest debt and turn it into a loan with a much lower interest rate. However, the flaw that many didn’t realize was that they would pay off this newly consolidated debt over 30 years, no interest rate reduction would save them money over that 30 year period. Others have used specific consolidation loans to bundle all your debts into one easily traceable payment. Regardless of the form and nature, the basic premise behind consolidation is that by bundling all your debts into one loan, you should be able to lower your interest rate and make it more “affordable” or “payable.”
In theory, debt consolidation seems like an attractive and viable solution to deal with debt. However, research and history have shown that consolidation rarely works, and my experience as a bankruptcy attorney tells me that people don’t save money in the long run, but it actually ends up costing them more. You can learn more about why consolidation rarely works by reading 4 Consolidation Pitfalls to Avoid, published by US News and World Report in April 2013.
Even finance gurus like Dave Ramsey admit that consolidation services don’t work and are nothing more than a “scam.” Read, The Truth About Debt Consolidation by Dave Ramsey.
Few reputable consolidation services exist, but many consolidation companies are nothing more than scams that prey on people with serious debt problems by playing on the fear of debt stress. Many of our former bankruptcy clients have tried consolidation companies and they all reported the same thing, it cost them a lot of money for the service but their debt balance did not change or did not change significantly.
Instead of wasting your time, money, and sanity on consolidation, Congress has given you another option to get out of debt. If you are in debt and have no foreseeable means of paying it off, you may still qualify for help.
When filing for relief under the Bankruptcy Code, people have a variety of options to get their financial lives back on track. Chapter 7 is a complete fresh start, by filing for Chapter 7 bankruptcy, you can eliminate almost any type of debt you may have and start your financial life from scratch. It’s life pressing the reset button.
Chapter 13 works like a structured payment plan, allowing you to pay off some debts over time and in an amount you can afford. Chapter 13 has many advantages that Chapter 7 does not, such as; stop interest and penalties on tax debt, save a home that’s about to be foreclosed on, and in some cases, Chapter 13 allows you to eliminate negative equity in the car you own. This means that you pay what the car is worth and not what the loan balance is.
In addition, many have reported that the time frame to get their financial life back through bankruptcy is much quicker than using unpaid loan and debt consolidation.
Talk to a licensed bankruptcy attorney practicing wherever you live to learn about the benefits of dealing with your debt through bankruptcy.
