From medical bills to credit cards, millions of Americans are facing the wrath of debt. And whether through fault of your own or not, the creditors of your debt can become very demanding in their attempts to collect on what you owe. Is it frustrating for you? Yes, and no matter how many times a day they call, if you don’t have the money to pay your debts, they won’t be able to collect on them.
If managing your debt wasn’t bad enough, the world took a traumatic turn when the pandemic hit, leaving millions of households and businesses in even more debt due to job loss and business closures. Among the hardest hit is Mississippi with 7,000 jobs lost in February this year. With such an economic downturn, it’s no wonder people are taking great strides to get out of such a problematic hole.
But, is this a reason to give up on reaching a thriving financial future? Absolutely not! There are indeed effective solutions to help you get out of or at least reduce your debt. The key is figuring out which solution is best for you.
Debt Consolidation vs Bankruptcy
When it comes to getting out of debt, most people’s automatic go-to solution is debt consolidation, usually because it’s less intimidating than the bankruptcy process. It’s perfectly understandable why people think this way but it’s also important to recognize that debt consolidation has its own set of complexities as well.
Thinking Twice About Debt Consolidation
According to the New York Federal Reserve, debt in America has reached a whopping $14.35 trillion, ranging from student loan and credit card debt to mortgages and auto loans. Because of this mountain of debt, consumers turn to debt consolidation as their savior.
What exactly is debt consolidation?
Debt consolidation is the process of taking all your debts and combining them into one large lump sum of debt, allowing you to make one monthly payment, simplifying your finances. But, before you jump on the bandwagon for debt consolidation, you need to do your due diligence to really understand what you’re getting yourself into, as it comes with stipulations and drawbacks you weren’t expecting.
Some drawbacks to debt consolidation include:
- Upfront Costs: Depending on the debt consolidation company you go with, some require upfront fees. Things like annual and balance transfer fees are sometimes required upfront, as well as closing costs. You want to be sure to also ask about any type of late or early payment fees. Always ask questions and read the fine print before signing anything.
- Risk of Scams: There are many legitimate debt consolidation companies out there but you can rest assured in knowing that there are double the number of disreputable companies out preying on individuals in desperate situations looking for debt relief. You have to be very vigilant in your search for a debt consolidation company for this very reason.
- The Real Debt Issue Won’t Be Solved: Debt consolidation is what’s going to help pay off your debt, but it won’t help identify and solve the bad habit that got you into debt in the first place. With this method, you have a much higher risk of getting right back into debt after paying it off.
All in all, debt consolidation may be a less invasive way to get rid of debt but it has the potential to not produce the financial results you had hoped for, or even put you in an even worse financial state than where you first started.
Talking to an experienced bankruptcy attorney is going to be the best solution when dealing with high debt. They’ll not only tell you how they can help you get out of debt and stay out of it but they’ll also give you the best advice about various types of debt relief options available to you based on your situation. No matter how hard times get, when you’re trying to get out of a financial bind, always weigh out your options. Talk to a financial advisor or bankruptcy attorney before signing any dotted line. This will prevent you from any scams or getting yourself into a deeper financial hole.