Many individuals consider consolidation when facing overwhelming debt. At first, in can seem like an appealing way to put an end to creditor harassment, maxed out credit cards, and the like. However, for as many “pluses” as consolidation seems to offer, there are just as many – if not more – drawbacks. Before you agree to a debt consolidation plan, make sure you understand what you’re getting yourself into.
What You Need to Know About Debt Consolidation
- Debt consolidation fixes the symptoms but not the underlying problem. High-interest credit cards can leave you in a lot of debt, and a consolidation plan can help. However, reducing your monthly payments on your credit card debt won’t make the problem go away. Until you address the real issue at hand, your finances are likely to stay in a state of disarray. In fact, studies suggest that up to 70% of individuals who consolidated their debt were left with just as much, if not more, debt a few years down the line. Why? Because debt consolidation loans don’t actually reduce your debt; they just make the payments more manageable. If you’re unable to change your spending habits, no amount of debt consolidation can help the matter.
- You could end up paying more interest over time. Don’t be fooled into thinking that lower monthly payments on your debt actually mean lower payments overall. The reality is that the longer you extend your loan (to reduce your monthly payments), the longer you’ll be paying interest on those payments – and the interest rates are usually exorbitantly high. In many cases, you’ll end up spending more in the long run than if you had taken care of the debt upfront.
- Your home could be at risk. Many debt consolidation plans involve consolidating your debt onto a home equity loan or other line of credit. This option essentially “guarantees” the loan with a pink slip to your home, which is a risky game to play. To be safe, you should only consider leveraging your home’s equity if you will still have at least 20% equity left after the line of credit has been taken out against it.
Talk to a Bankruptcy Attorney Before Moving Forward
The best way to know if debt consolidation is right for you is by speaking with a qualified bankruptcy lawyer about your current financial situation. The right attorney can explain all of your options to you, as well as the risks that come with these options. Together you can make a decision on how to best move forward.
For experienced legal counsel in Northbrook, contact the Bach Law Offices. We offer a free, in-person consultation, so don’t want to contact us today.