If you’re in a lot of debt then it’s likely you’ve considered your options. These may include both debt consolidation and bankruptcy. Debt consolidation is one option that involves getting all your debts – most especially those on which you’re paying high interest – and bringing them together so that you’re make just one monthly payment, ideally with a lower interest rate.
Many debtors find on the surface that this seems like the perfect option. However, there a number of issues to be aware of and consider before you make a decision. In many cases, a bankruptcy filing is more useful and more affordable. Read on to learn more about debt consolidation and then contact The Law Offices of Paul Y. Lee at 951-755-1000 for a free bankruptcy consultation.
There are four main types of debt relief
When we use the term “debt relief” we are actually discussing four different types of debt consolidation. They include:
- Credit card balance transfer. This involves you transferring the balance from one or more credit cards to another credit card. This allows you to make one monthly payment and could lower your interesting rate, but often these lower interest rates expire after a short period of time.
- Debt consolidation loan. This is a loan borrowed specifically to consolidate debt. You won’t ever touch the money from this loan – it goes straight from the lender to your creditors. These loans often come with high interest rates and extended payment plans, which sound good on the surface but inevitably mean paying more interesting in the long run.
- Home equity loan. Secured with the equity in your home as collateral, how much you’re able to borrow is tied to your credit history, income, and the value of your home. The major downside to this option is that if you don’t make payments, your home can be foreclosed on.
- Personal loan. It’s often challenging for a person to get a personal loan that covers all their debts. These loans are generally unsecured, which means you don’t need property to use as collateral, which also means you need a high credit score to qualify. Once again, the credit terms of personal loans often result in paying more in interest and fees than was owed on the original debt.
The pros and cons of debt consolidation
The main advantage of debt consolidation is that you pay just one bill with one deadline each month. In many cases, debt consolidation can also lead to lowering interesting rates and payments as well. Finally, debtors can use this option to pay off their debt on a schedule that works for their current income.
One the other hand, if a person isn’t able to curb their spending then debt consolidation often just opens up more credit for them to run up. Not all creditors will accept consolidation, so you may end up still having more than one payment each month. This process takes many years, compared to an option like Chapter 7 bankruptcy that wipes out debts within months, this lengthy period can be a big negative.
If you’re in serious debt and want help, then contact The Law Offices of Paul Y. Lee at 951-755-1000 today to get the help you need.
