When you’ve tried everything you can to get out of debt and nothing has worked, you might think that bankruptcy is your only remaining option. What if I told you that there was a pathway out of debt that didn’t involve liquidating your assets, mandatory legal proceedings or having the proceeding become a matter of public record?
You don’t have to file bankruptcy to get out debt until you’ve considered all your debt consolidation options.
Why Consider Debt Consolidation Over Bankruptcy?
Even though bankruptcy is a legal option, it comes with significant long-term consequences that can haunt you long after your debt is gone. Bankruptcy stays on your credit report for 7 to 10 years, depending on the type, and can make it extra challenging to:
- Rent a home or apartment
- Qualify for a mortgage
- Get a job in certain industries
- Take on other types of credit
Also, the process can be public, costly, and emotionally draining.
On the other hand, debt consolidation is a strategic approach that combines multiple high-interest debts (like credit cards, personal loans, or medical bills) into one simplified monthly payment and can restructure your debt in a way that makes it more affordable.
The Benefits of Debt Consolidation Options
Choosing a debt consolidation option could have several advantages like:
- Lower Monthly Payments: Reduce eligible monthly payments and free up your daily cash flow.
- Simplified Payments: Stop juggling multiple payments by combining them into one.
- Get Out of Debt Faster: The opportunity to get out of debt in 24 to 48 months.
- Avoid Bankruptcy: Handle debt privately and keep bankruptcy off your public record.
- Reduced Stress: Stress less with personalized 1:1 support from experts.
Keep in mind, debt consolidation isn’t a one-size-fits-all solution; it’s an umbrella term for several strategies. While the combination of benefits available depends on the option you choose, you can often customize a solution to fit your needs.
Understanding the different options available can help you choose if it’s a better path for you than bankruptcy.
Different Paths to Debt Consolidation
1. Debt Consolidation Loans
This involves taking out a new, larger loan (sometimes with a lower interest rate) to pay off several smaller, existing debts. The new loan gives you one monthly payment to the new lender. If you qualify for a lower interest rate you could save money but eligibility depends on factors which include your current credit score and income. The new loan may also have a different repayment structure that lowers your monthly payment.
2. Debt Management Plans (DMPs)
Managed by a non-profit credit counseling agency, a DMP involves the agency negotiating with your creditors to lower interest rates, change your repayment terms or waive fees. You make one monthly payment to the DMP agency, and they send the funds to your creditors. DMPs are a structured way to pay off unsecured debts.
3. Debt Resolution
This involves negotiating with your creditors (either on your own or through a debt resolution company) to reduce the overall debt to be paid through a lump sum or payment arrangement. This usually leads to a significantly lower monthly payment and overall reduction in debt, but can negatively impact your credit score.
4. Balance Transfer Credit Cards
If you have good credit, you might qualify for a balance transfer credit card that consolidates multiple credit cards debts onto one, new card. If the card has a 0% introductory APR you can pay down the debt without interest accumulating. If it has a lower interest rate than your previous average, that will also save you money. Before choosing this option make sure you pay attention to any transfer fees and actually pay off the balance before a promotional period ends.
5. Home Equity Loans/Lines of Credit (Refinancing)
For homeowners, a home equity loan or line of credit (HELOC) can consolidate debt by leveraging your home’s equity. While it offers potentially lower interest rates and tax benefits, it puts your home at risk if you can’t make payments. This is essentially a form of refinancing your home equity for debt purposes.
Is Debt Consolidation Right for You?
If you’re struggling to manage multiple high-interest debts, debt consolidation could be your answer. It offers a clear, compassionate path forward, allowing you to honor your commitments while rebuilding your financial future without resorting to bankrutpcy.
Curious about debt consolidation? Talk to an expert at Accredited Debt Relief and weigh your options to find the best fit.