What About Debt Consolidation?

What About Debt Consolidation?

We hear regularly that people are going to try debt reduction or consolidation before taking the last steps to bankruptcy. Even after visiting with them for a time, it becomes clear that reduction or consolidation services will be of little value. Here are some things to consider if you are looking at debt reduction versus bankruptcy.

1) Debt reduction, in our experience, rarely works unless the person makes enough money to pay at least some to each creditor to keep them happy. Take a look at all your creditors and figure out what the least is you would have to pay them to keep them from coming after you. Are you at least paying off the interest each month for each creditor?

If you are not at least paying off the interest and a little principle, then the likelihood increases that one creditor, or multiple, will send your account to collections. Collections is basically the same except collections tends to charge more interest. If you failed with the original creditor, the chances are you will not keep a collector at bay.

The moment the first lawsuit or garnishment hits, then the entire plan of trying to stave off the creditors with minimum payments will fall apart when one is taking a 25% cut of your income. It is just as heavy a blow when a creditor takes the full amount from a bank account.

Unless you are making enough money to make minimum payments, and pay off creditors one at a time, there is very little a debt reduction or consolidation service can offer. These services really have little more power than if you were to call the creditor directly.

2) Another reason some people seem to like reduction or consolidation services deals with their credit score. I have written about how bankruptcy affects a credit score before. To make it simple, a bankruptcy is one immediate hit to your credit and is something you can recover from quickly.

Debt consolidation or reduction does not change how the creditors report and can actually do damage for longer than a bankruptcy can. Bankruptcy stops all debts you do not keep at that point. Seven years from now, every one of those creditors falls away. Debt reduction can keep those debts lingering for years to come. You could still be behind in payments and trying to get ahead in seven years, where in bankruptcy those creditors could be falling off your credit.

Bankruptcy is not something that should be taken lightly. But when compared with other options, it clearly is an option that should be more favorable than many of the other alternatives. Start your life fresh today and not attempting to pass the worry on to someone else. It does not work and often you still have to face the problem.

Give us a call today for a free consultation. We can tell you how Idaho law can help you overcome your debt problems. We have lawyers who deal with this and can help you in walking this difficult path.