Comparing Debt Consolidation to Bankruptcy
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Debt consolidation is an alternative to bankruptcy which allows you to lump everything you owe into one monthly payment. There are however, many risks associated with debt consolidation which may not make it the best way to eliminate your debt. Debt consolidation does not reduce the amount of money that you owe and may not lower your monthly payments. What it does do is combine all of your payments into one with HOPEFULLY a lower interest rate. We say HOPEFULLY because you’ll need good credit in order to enter a debt consolidation program. Basically, you’ll be changing the lender, not eliminating it. Often you’ll need to use some collateral, such as a house or car, in return for the consolidation loan. Frequently, the consolidation loans will include clauses that permit the lender to repossess your car or foreclose on your house with even one missed payment.
On the other hand, bankruptcy allows you to either eliminate all of your debt or reduce your monthly payments to something more affordable all without having to risk your home or car. It does not require good credit and it addresses the underlying cause of your financial struggles.
Is Debt Consolidation a Scam?
U.S. News & World Report estimates that at least 70% of those who consolidate their debt end up with as much or more debt a few years later. Debt consolidation seems appealing because there is a lower interest rate on a portion of the debt and a lower monthly payment. However, the lower payment is due to the loan terms being extended years out. In nearly all cases, the longer you extend your consolidation terms, the more you ultimately pay the lender. Many clients come to our office after years of debt consolidation, saying they wasted thousands and got nowhere. Do not make the same mistake.
An experienced bankruptcy attorney will provide advice to specifically address your financial problems. At Detroit Lawyers, we can discuss all your options, including debt consolidation, to improve your financial condition.
Contact our office at 248.327.7979 to schedule a FREE CONSULTATION.