Debt Consolidation: Savior or Scam?

Debt Consolidation

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In 2021, U.S. consumer debt rose to almost $16 trillion. With so many Americans struggling to pay their bills, debt consolidation is often considered a solution to financial problems. However, the success of debt consolidation is by no means guaranteed and can potentially cost consumers more than other debt-relief options.

What Is Debt Consolidation?

Generally, it involves rolling multiple existing debts into one. There are several types of debt consolidation products, the most common being debt consolidation loans, balance transfer credit cards, debt management plans, and debt settlement services.

Debt consolidation loans and balance transfer credit cards are likely the safest options for consumers, but they are generally only available or beneficial to strong credit borrowers. If you have bad credit it will be difficult to qualify for these services, and even if you do qualify, your APR may increase over time.

Debt management plans involve creating a repayment plan for debt in conjunction with debt negotiation by a professional on your behalf. Non-profit debt management planning is generally a trusted option and can be available to people with poor credit. However, these types of plans don’t manage secured debts like your mortgage or car loan. You can also be charged high fees.

Debt settlement can sometimes be a viable option but is rife with scams. Generally, debt settlement companies will offer programs where you make payments to them instead of to your creditors. Those companies will then negotiate with creditors for a lower payoff amount. The problem with debt settlement is that most companies charge significant fees with no guarantee that their service will work. Furthermore, your credit can take a hit in the meantime (and even if they are successful).

If you are considering debt consolidation, bankruptcy may also be a viable option and can be much cheaper than other debt management strategies depending on your circumstances. If you are having trouble paying your bills or need help handling your debts give an experienced bankruptcy attorney a call or visit us at At WM Law, we are here to help.

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Jeffrey L. Wagoner


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