Debt consolidators can seem like the answer to all of your financial problems; they roll your loans into one payment, your terms are negotiated and your monthly payment is made more manageable than before. Unfortunately, the down side of debt consolidation is that it can be a poor choice for many individuals and can even worsen their financial situation.
The first danger of debt consolidation is that these companies are in business to make money. Many individuals in debt will rush into debt consolidation without understanding the full terms of their repayment. Some companies will offer “teaser rates” or tack on additional fees for transferring funds. These fees and new rates can drastically increase the payment amount and many people find themselves unable to make these new and unexpected payments.
Another risk with using a debt consolidator is receiving misleading information. Many debt consolidators will advise you to stop making payments since they will all be rolled into one payment. This can be damaging advice, since many creditors will start charging fees the moment payment stops. These fees can add up quickly, especially if you stop payment to multiple creditors.
Lastly, many debt consolidators will not turn you away. This may not seem harmful, but for some people bankruptcy is really their best option. Consolidating debts for those people will only add more stress to their financial trouble, add thousands more in fees and delay the recovery process.
Luckily, there are some real tips to help you avoid bankruptcy, but it requires a financial plan and the discipline to stick to it. Here are a few ways to possibly avoid bankruptcy:
Pay down your loans with the highest fees and interest rates. This may seem like common sense to most people, but many people will surprisingly pay off their lowest debt first, thinking that one less debt will make a bigger difference.
Borrow money from family, but make it official. Most friends and family are willing to loan you money interest-free. If you’re planning on borrowing money to repay your debt, draw up a legal contract explaining the terms of the loan and your anticipated repayment plan.
Talk to a bankruptcy attorney. Surprisingly many people won’t go to an attorney if they are considering filing for bankruptcy, for fear of being talked into it. In reality, most attorneys will offer other solutions, if possible, and can answer many of your questions. If you truly feel debt consolidation is truly right for you, ask an attorney. Of course if bankruptcy is your best solution, they will be able to explain how each Chapter works and how it will affect you. Contact a San Antonio bankruptcy lawyer today to learn if bankruptcy is right for you.
Jeff Davis is the Owner of the Davis law firm, and a highly experienced San Antonio bankruptcy attorney. To find out more information about a San Antonio bankruptcy lawyer, please visit www.jeffdavislawfirm.com.