One Advantage Of Debt Financing Over Equity Financing Is The Does Debt and Loan Consolidation Really Work?

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Does Debt and Loan Consolidation Really Work?

Debt and debt consolidation is the process of taking all or some of your debts and putting them all together. Many people use consolidation for many reasons and there are many different ways to do it. During the home refinancing boom of the mid-2000s, many people refinanced all of their debt into their home loans. They thought they could take their high interest loans and put them into loans with very low interest rates. However, many failed to realize that as they would be paying off this new debt consolidation for 30 years, no reduction in interest rates was going to save them money over the course of 30 years. Others have used special consolidation loans to lump all their debts into one easily trackable payment. Regardless of the form and nature, the basic premise behind consolidation is that by lumping all your debts into one loan, you should be able to lower your interest rate and make it “affordable” or “affordable.”

In theory, debt consolidation seems like an attractive and viable solution to 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, it doesn’t save people money but actually costs them more. You can learn more about why consolidation rarely works by reading 4 Consolidation Traps to Avoid published by US News and World Report in April 2013.

Even finance gurus like Dave Ramsey admit that consolidation services don’t work and are nothing more than a “con”. Read, The Truth About Debt Consolidation by Dave Ramsey.

There are some reputable consolidation services out there, but many consolidation companies are nothing more than scams that take advantage of people with serious debt problems by preying on the fear that comes with debt stress. Many of our former bankruptcy clients have tried consolidation companies and they all reported the same thing, it cost them more money to service but their debt balance did not change or change significantly.

Instead of wasting their time, money and sanity on consolidation, Congress has provided another option to get out of debt. If you are in debt, and you have no foreseeable means of being able to pay it off, you may still qualify for help.

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 complete fresh start, by filing bankruptcy under Chapter 7 you are able to eliminate almost all types of debt and start your financial life with a clean slate. Hitting the restart button means life.

Chapter 13 works as a structured payment plan, allowing you to repay some of your debt in a time frame and in an amount you can afford. Chapter 13, has many benefits that Chapter 7 does not, such as; Stopping interest and penalties on tax debt, saving on a home that’s about to go into foreclosure, and in some cases Chapter 13 allows you to eliminate negative equity in your car. This does not mean you have to pay for what the car is worth and not what the loan balance is.

Also, many have reported that the time frame for getting your financial life back through bankruptcy is much faster than using unsecured loans and debt consolidation.

Talk to a licensed practicing bankruptcy attorney wherever you live to learn the benefits of dealing with your debt through bankruptcy.

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