Debt consolidation is one strategy to pay debt (credit cards, medical bills, personal loans, business debts, civil judgments, etc.) and works by placing all of the existing balances on one loan. It can simplify your finances, and lower the cost of carrying your debt through a reduced interest rate.
However, debt consolidation as a strategy has some drawbacks.
First, it does not erase the debt. Once consolidated, you will pay back every cent of the debt. It may take years and years to pay off the consolidated loan and in the interim “life happens” and financial curveballs are not uncommon.
Second, you may believe falsely that you’ve dealt with your finances once the debt has been consolidated into one loan. What clients have often not contended with is the spending side of the budget. Ultimately, it is individual spending habits that must be addressed; this not only frees up monies to make the payments on the consolidated loan, but it also places the debtor into a position where they will not make the same underlying decisions that resulted in the consolidation.
Third, you want to pay particular attention to the terms of the consolidated loan. Many loans will offer introductory periods with no or low interest rates that spike after 12 or 24 months. As a result, budgeting for the future is key.
Contrast filing for bankruptcy under Chapter 7 or Chapter 13 bankruptcy which provides a fresh start, ceases all contacts from creditors, eliminates most types of debt, and interest payments on that debt. If you qualify for a Chapter 7, the speed with which one can obtain a discharge (5-6 months often) can be a very robust reason to go this route.
Often, debtors report that they tried to go through with a debt consolidation, but that ultimately, they could not keep up with the payment after payment required, and so they opt to learn more about the benefits of filing a bankruptcy petition in the Eastern District of Virginia.
If you need to speak with a Chapter 7 bankruptcy lawyer or a Chapter 13 bankruptcy lawyer, please call Winslow, McCurry & MacCormac, PLLC at (804) 423-1382.
