Large medical expenses, a divorce or a lost job can all force responsible spenders into a situation where they need to carry debt to make ends meet. These debts can sometimes snowball into a situation where the debt begins to feel unmanageable.
In these situations, people look for services to help them deal with their debt. One service that is often pursued is debt consolidation.
Debt consolidation can help people bring all of their debts together into a single loan. This can be a nice if you owe money to several different lenders. Rather than having to keep track of paying back multiple loans, debt consolidation allows people to make a single payment every month.
It sounds great in theory. In practice, debt consolidation may not be the best long-term solution for dealing with debt.
Consolidation may not help people pay off their debt
The best solutions for families with large amounts of debt should be those that help people fully move on from their debt. Unfortunately, debt consolidation does not have a great track record when it comes to helping people pay down their debt.
Some estimates report that after several years, at least 70% of people who use debt consolidation services have either the same amount or a greater amount of debt than when they initially consolidated their debts. Even though the debt may be simplified into a single account, consolidation often doesn’t help people fully conquer their debt.
Debt consolidation can be expensive
Debt consolidation services may appear affordable, but that could be an illusion. Sometimes it may look like you are receiving a lower, better interest rate, but that is not always the case. Even if the rate is lower, the fees charged can negate any savings enjoyed from that lower rate.
Rather than using debt consolidation, bankruptcy can be a more affordable option for people in need of debt relief services. Some people may believe that the fees associated with hiring an attorney are too cost prohibitive. While every case is different, the costs of hiring a bankruptcy attorney can be less than the costs of using a debt consolidation service.
While some people may have negative perceptions of bankruptcy, the truth is that it is a practical solution to dealing with debt. Prior to using debt consolidation, it is a good idea to research whether Chapter 7 or Chapter 13 bankruptcy may be a better solution for dealing with debt.