The downsides of debt consolidation
Michigan residents may believe that a debt consolidation loan may be the answer to their debt issues. However, this is not always the case, and it is possible that debtors may find themselves even deeper in debt after consolidating. This is because consolidating existing debt doesn’t address the issue of why a person spent too much money to begin with.
One man was able to reduce his credit card payments to about $375 a month thanks to a loan from a credit union. However, it also gave him the ability to accrue more credit card debt, and that money was spent on a television or computer. Instead of noticing the 25 percent interest rate, all he saw was the $35 monthly payment to have that computer. Now in bankruptcy, he closed his credit card accounts and tries to save for items that he really wants.
In addition to refraining from credit card use, individuals are urged to commit to a budget to get their spending under control. As a general rule, debtors should consider bankruptcy if it would take more than three to five years to pay off their debts. Furthermore, they are urged not to use a 401k or other assets that would be protected in a bankruptcy proceeding to consolidate their debt.
Individuals who are facing financial challenges or are otherwise having trouble making debt payments may benefit by filing for bankruptcy. Taking this step may put an end to creditor collection calls and other debt collection efforts. Furthermore, assets such as a retirement account, equity in a home or a vehicle may be off-limits to creditors in a given case. Therefore, it may allow an individual to resolve his or her debt issues without losing money or other important assets.