THE REALITY OF A DEBT CONSOLIDATION PROGRAM AND WHY IT IS USUALLY NOT A GREAT IDEA
Debt Consolidation may appear to be a good alternative to Bankruptcy, but it is usually not the case. Here are the reasons why:
- You may have all the intention in the world to repay your debt on affordable terms, but creditors do not have to accept your terms. Creditors may continue any and all collection efforts under the original terms of the debt obligation no matter what you try to do; thus, an attempted full consolidation of your debts may not be possible.
- A debt consolidation company charges a monthly fee, with no guaranteed results.
- The fees associated with debt consolidation usually exceed that which would have been incurred if you had originally filed a Bankruptcy Case. Please see the discussion with regard to Chapter 7 and Chapter 13 Bankruptcy.
- Unlike a Bankruptcy Case, you will continue to accrue interest on your debt(s). The interest rates may be reduced, but they will never reach 0.00%.
- A debt consolidation program lasts a number of years, whereas a Bankruptcy Case may only last a few months. Please see the discussion with regard to Chapter 7 and Chapter 13 Bankruptcy.
- A debt consolidation appears on your credit report just like a Bankruptcy Case would appear and there is no significant difference in the impact on your credit score. In fact, in most instances, your credit score repairs itself much faster after filing a Bankruptcy Case when compared to entering into a debt consolidation program.
- If you do not complete the debt consolidation program, you are back at square one.
- Whichever creditor did not participate in the debt consolidation program can and will continue to pursue any and all collections efforts, including lawsuits, harassing phone calls, collection notices, wage garnishments and the potential seizure of your assets.