Debt and loan consolidation is the process of taking all or some of your debts and pooling them together. Many people use merging for a number of reasons and there are different ways to do it. During the home refinance boom of the mid-2000’s, many people refinanced all of their debt into their home loans. He thought they could take their high-interest debt and put it into a loan at a much lower interest rate. However, the drawback that many fail to realize is that they will be paying on this new consolidated debt for 30 years, and no rate cut would have saved them money during that 30-year period. Others have used specific consolidation loans to bundle all of their debt into one easily trackable payment. Regardless of the form and nature, the basic premise behind consolidation is that by pooling all of your debt into one loan, you should be able to lower your interest rate and make it “affordable” or “payable.”
In theory, debt consolidation looks like an attractive and viable solution for dealing with debt. However, research and history have shown that consolidation rarely works, and my experience as a bankruptcy attorney tells me that in the long run, people don’t save money but actually end up costing them more. You can learn more about why standardization rarely succeeds by reading 4 standardization traps to avoid published by US News and World Report in April 2013.
Even financiers 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.
There are only a few fairly reputable consolidation services out there, but many consolidation companies are nothing more than scams that take advantage of people with serious debt problems by exploiting the fear that comes from debt stress. Many of our previous bankrupt clients have tried consolidation companies and they all report the same thing, it cost them a lot of money for the service but their debt balance didn’t change or didn’t change significantly.
Instead of wasting time, money, and sanity on a merger, Congress presented another option for getting yourself out of debt. If you are in debt and have no expected means of being able to pay it back, you can still qualify for assistance.
By 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 whole new beginning, by filing for Chapter 7 bankruptcy you can get rid of every kind of debt you might owe and start your financial life with a clean slate. It’s life hit the restart button.
Chapter 13 works like a structured payment plan, allowing you to pay off some debt in a time frame and at an amount you can afford. Chapter 13, has many advantages over Chapter 7, quot; Stop interest and penalties for tax debt, save a home that is about to be foreclosed on, and in some cases Chapter 13 allows you to strip negative capital in the vehicle you own. This means that you pay for the car, not the loan balance.
Also, many have reported that the time frame to get your financial life back through bankruptcy is much faster than using unproven debt and loan consolidation.
Talk to a licensed practicing bankruptcy attorney wherever you live to learn the benefits of dealing with your debts through bankruptcy.