Consumer debt in this country has soared to $13.86 trillion, according to the New York Federal Reserve, an all-time high. If you’re having a hard time servicing your debt, you’re not the only one. Many people would like to know if debt consolidation is a better idea than bankruptcy.
I know some people who have generally had a good experience with debt consolidation. The promises are the debt will be repaid sooner, simplified finances, lower average interest rates (credit cards of 18.7% v. 10.07% APR in debt consolidation), and a fixed repayment schedule. But please be careful. I have had a lot of clients who have come to me after paying tens of thousands of dollars to debt consolidation companies only to have to seek bankruptcy protection after paying all that money. Debt consolidation won’t solve the underlying problem. There are some upfront costs, including loan origination fees, balance transfers, closing costs, and annual fees.
The bottom line is for each of my clients who had tried debt consolidation before bankruptcy, the client would have been better off seeking bankruptcy protection sooner. They could have been starting fresh financially instead of emptying their proverbial piggy banks to service mounds of debt for years.