When you find yourself in so much debt that you’re having a hard time keeping up with all your bills, you may feel as if you have no choice but to file for bankruptcy. But there are other ways to seek help for your debt that you may want to explore, such as debt consolidation.
In a debt consolidation, you essentially refinance your debt by taking out a loan to pay off all your bills, leaving you with just one monthly payment rather than several. If you work with a credit counseling company on your debt consolidation, the counseling company may be able to work with your creditors to lower your interest rates or even forgive some of your debt, which will reduce your monthly payments and overall debt even more.
Credit Card Consolidation
If you find that the majority of your debt is credit card debt, you might want to look into a balance transfer. Many credit card companies offer balance transfers with a low interest rate, often zero percent, for a number of months. Consolidating the balances of your high interest credit cards onto the one card drastically lowers your payments and allows you time to pay the balances off faster. This option is best for people with credit card debt who can pay off most (or all) of their debt during the introductory low- or no-interest period. It’s important to remember that this option is also only good for you if you plan to not use their credit cards while you’re paying your debt; otherwise you will just continue to rack up debt rather than chiseling away at it.
Secured vs. Unsecured Consolidation Loans
Those who have more than just credit card debt may want to consider going with debt consolidation. Credit counseling companies work with you and your creditors to see if they can get lowered interest rates, or even some of your debts forgiven. In these cases, you may be able to get more of a break from your creditors if you have some collateral you can use to back your loan.
People often use a home equity loan or a home equity line of credit (HELOC) to get a secured loan. While a secured loan can aid you in loan consolidation, you should be very careful when you go this route. If you fail to pay your consolidation loan, it may put your home in jeopardy.
People who cannot opt for a secured loan have no choice but to go with an unsecured loan. Creditors may not be as willing to lower your interest or reduce your debt in this instance; they may view your unsecured loan as risky since you really have no collateral, and therefore no reason, to keep current on your payments.
Is Debt Consolidation Right For You? Contact the Cleveland Bankruptcy Attorneys
A debt consolidation loan can be an attractive alternative to bankruptcy because it helps you reduce your debt without hurting your credit. But debt consolidation is not for everyone. People who have fallen behind on their bills due to job loss or a medical problem that hurt their ability to work may simply be unable to afford any kind of payment plan. When deciding on debt consolidation, you should be confident that your financial means will not change during your repayment period, because failure to pay your loan means your creditors might go after you for the full amount you owe.
If you’re still not sure which is the best choice, you might want to talk to the Cleveland Bankruptcy Attorneys. Our Ohio bankruptcy attorneys have experience in many kinds of debt repayment, and they can go over the pros and cons of all scenarios so you can be confident in your decision. For a free consultation, call (216) 586-6600 or email us at firstname.lastname@example.org.