Advertisements for debt consolidation services often claim to help people overcome high levels of debt. Some people turn to these services, only to end up with far more severe financial challenges months later.
Debt consolidation is not necessarily a solution for intensifying financial pressure. In many cases, bankruptcy may be a better option than debt consolidation. Why is it that consolidation often not as helpful as people expect?
People replace debt with more debt
There are a few ways in which debt consolidation is beneficial for people struggling financially. They can eliminate multiple different payments in favor of a single consolidation loan payment every month. They can also bring past-due accounts into good standing by paying the balance owed in full.
However, debt consolidation merely moves the amount owed to a different creditor. The company providing the consolidation loan may charge an origination fee and impose penalties for late payments. The amount the person owes may continue to steadily climb even after consolidating their debts due to interest and fees.
Worse, they may resume using their revolving lines of credit after consolidating the balances owed on them. The end result of those financial maneuvers may be drastically higher debt levels overall.
Bankruptcy is not like debt consolidation. It doesn’t use debt to address debt. Instead, it provides temporary relief from collection activity followed by a discharge of eligible debts. People who successfully file for personal bankruptcy can eliminate stressful financial obligations.
Debt consolidation loans may seem helpful, but they are often a short-term solution for what is truly a long-term problem. Learning more about personal bankruptcy can help people feel more confident about filing, which can lead to truly meaningful debt relief.