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Wait on that decision to consolidate

Debt consolidation seems like a pretty great thing when you are struggling to meet your financial obligations. Who wouldn't want to combine everything into one low monthly payment? Sounds like a pretty sweet deal, but is it? California residents who are considering this option should probably wait on their decision to consolidate until they learn more about it.

What exactly is debt consolidation? What are the benefits? What are the drawbacks? Is there a better way to address debt problems?

Debt consolidation is...

Many California residents have loans for cars, their homes and education -- among others. Some also have credit card debt that just keeps building. Consolidating your debt means taking out one large loan that will cover all of your debt and combining them so that you only have one payment with which to deal rather than multiple.

The good

Why might a debt consolidation be a good thing? As previously stated, it combines all debts into one nice monthly payment. This can make the debt easier to track. It can also lower the amount you pay each month.

The bad

Here is where debt consolidation firms get you. Yes, you will get a low monthly payment, but the duration of the loan may be quite long, which increases the amount you will end up paying in interest. This means that you wind up paying more in the long run. Sometimes, it is quite a bit more; we're talking several thousand dollars in some cases.

A better way

When it comes to getting out of debt, for some people, the solution is simply adjusting their spending habits. It would be nice if that was the case for everyone, but it is not. Others are too far in over their head that setting a budget is not going to be enough, but neither is debt consolidation. This is where legal debt relief options come into play.

Bankruptcy is one such option that may actually provide the relief you need. There are two types of personal bankruptcy -- Chapter 7 and Chapter 13. For those who lack sufficient income, a Chapter 7 liquidation bankruptcy may be the way to go. Most debts can be discharged immediately if your petition receives court approval.

A Chapter 13 bankruptcy, on the other hand, may be available to those with steady income but too many debts. If this type of petition receives approval, one can create an affordable repayment schedule, and at the end of the repayment plan, remaining debts may be eligible for discharge.

Either one of these or the other debt relief options that may be open to you can offer financial freedom. The decision to consolidate, on the other hand, may only make your situation worse.

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