Debt Consolidation - Better or Worse than Bankruptcy?

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Debt is a fact of life for most people. If you are paying a mortgage or vehicle loan, that is considered "good" debt. But what is "bad" debt? For a lot of people, that "bad" debt is due to credit cards. Using those credit cards and only paying the minimum balance each month just digs you a little further into debt until one day you find that you cannot make your monthly obligations like rent, food and electricity. That, coupled with harassing creditor calls, is what prompts people to try debt consolidation.

Debt consolidation can involve you securing a loan which will pay off your debt and reducing multiple bills into one easy payment. However, the danger of obtaining a debt consolidation loan is that there is temptation to use the credit cards. Many people who secure a loan, whether a home equity loan or second mortgage, soon find themselves in a deeper hole because they started using the very same credit cards that got them into their original trouble.

Another plan for debt consolidation involves going through an intermediary company that basically negotiates with the creditors on your behalf. Many times they get interest rates slashed, thus lowering payments. When going with a debt consolidation plan through one of these middleman companies, you are required to cancel all of your credit cards and consolidate all your unsecured debt through them. From there, you pay the intermediary one payment and they disburse the monies to your creditors. Going with a debt consolidation company will affect your credit score and it will take several years to build it back up, and often causes more problems than it solves.

For those people up to their neck in debt, there is another, better alternative - Chapter 13 bankruptcy. It is a type of debt consolidation plan through a court of law which allows you to structure all of your debt payments into a single one. Under this plan, you cannot lose your vehicle or home to repossession because the courts protect you. Under a traditional debt consolidation program through an intermediary company, that threat of repossession still exists. Plus, you can only include credit card debt.

Under Chapter 13 bankruptcy, debt consolidation can include your mortgage, vehicle loans, credit cards, delinquent child support and even taxes. In addition, interest rates can usually be virtually eliminated under a Chapter 13 debt consolidation. Traversing through the world of debt can be confusing, especially if you are unsure as to what would be the best solution for working your way out of debt. By consulting our attorneys who understand bankruptcy and debt consolidation, you are investing in a debt-free future. It is a smart move and can help you determine the best recourse for your circumstances. Contact us today.

Updated 8/3

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