When considering financial plans to eliminate their debt, it's shocking how many people decide to go with debt consolidation over bankruptcy. Debt consolidation combines multiple debts into a single loan or payment plan, often with a lower interest rate. To the uninformed, bankruptcy sounds harsh and intimidating, while debt consolidation sounds more calming and laid back. But are things really this way? Let's take a look behind the curtain.
For the last 35 years, Borell Law has handled countless debt defense cases and has offices in Miami, Orlando, Tampa, and Jacksonville to help you in debt lawsuits. Here is what you need to learn about debt consolidation.
If you were $25,000 in debt at an average of 29% APR across five credit cards, a debt consolidation company might offer you to put all those balances under one account for 23% interest. These companies will offer a lower monthly payment but extend the length of the payment term, often resulting in the client paying much more than the original debt in the long run.
Debt consolidation is often promoted as a quick fix for getting out of debt. Technically, that company is getting you out of debt with the banks, yes. But they aren't telling you that you are now in debt to them, and if things go south, you will have few options.
In bankruptcy, debtors are provided with more options to address their debts. Some options include the discharge of eligible debts, the ability to challenge creditor claims, and exemptions to protect certain assets from liquidation. Debt consolidation does not offer these legal options.
You're putting your property on the line by consolidating unsecured debts into a secured loan, like a home equity loan. If you can't make the payments on that loan, the lender can foreclose on your property.
Debt consolidation is often used as a strategy to lure individuals away from considering bankruptcy. To the uninformed person, it's easy to choose debt consolidation over bankruptcy. Debt consolidation looks more friendly and less complex on paper. But is bankruptcy really all that bad? Or is the name more intimidating than the reality?
