Macco Law Group, LLP

Can debt consolidation be the answer for overwhelming debt?

Can debt consolidation be the answer for overwhelming debt?

Debt consolidation may seem a bit counterintuitive at first. Can a person in Long Island really borrow to pay off his or her debts? While not everyone can make it work, there are those who find that debt consolidation provides them with a more feasible means of paying off their debts in a manageable way. By transferring the balance of one’s credit card debt to a card with a lower interest rate, individuals may find they have lower monthly payments.

Another means of debt consolidation is to get a secured loan. Secured loans use an asset such as a house or automobile as collateral. Secured loans in general have relatively low interest rates. However, there is the risk of foreclosure or repossession should the debtor not make payments in full and on time.

If a person is thinking about debt consolidation, he or she should first sit down and objectively analyze their financial situation. If the person’s debts amount to 50 percent or more of their income, filing for Chapter 7 bankruptcy might be an alternative. A Chapter 7 filing wipes away many of a person’s debts within a matter of months, instead of years.

If a person does decide on debt consolidation, he or she should avoid high-cost loans. The cost of a loan includes monthly payments as well as fees. A person should make sure the loan they are consolidating their debt into won’t be more expensive in the long-run. Similarly, a shorter loan means less interest to pay, which saves money. Finally, individuals should try not to fall further into debt if they are consolidating. Some lenders will send the debtor’s monthly payments straight to the credit card company, so there is no urge to use the loan for other things. Also, by closing a credit card, a person cannot rack up a further balance on it.

A person has to be committed to making payments, creating a realistic budget and sticking to it in order for debt consolidation to work. However, by taking these steps a person can eliminate debt that at one point might have seemed impossible to tackle. If that pan does not work, an experienced attorney can help with other options like debt workout plans, or even a bankruptcy filing.

Source: Nerdwallet, “Borrowing Your Way Out of Debt,” Liz Weston, Oct. 11, 2016