Is Debt Consolidation Always the Best Option?

Overwhelming debt is a problem for millions of Americans from all income levels. It is not something only the wealthy or only the poor experience. Debt grows over time from medical bills, student loans, or credit card charges. It generally starts out as a small concern and multiplies as people make minimum payments or continue to cycle their debt by using one loan to pay off another. The end result is feeling helpless and out of control.

People frequently live from paycheck to paycheck with the knowledge that one emergency or unexpected event could cause complete financial ruin. There are typically two solutions when things reach this point. The debtor must either file bankruptcy or consolidate their debts to reduce their monthly burden. Debt consolidation may seem to be the easier and simpler option, but that is not always the case. There are some risks with consolidation.

  • Not all creditors will agree to work with debtors.
  • Credit scores may suffer even as the debt is being repaid.
  • There are many debt consolidation scams in existence today.
  • Failure to plan properly for the unexpected could throw off the repayment plans and add more debt.
  • It could take many years to pay the debt in full.

The myth of debt consolidation as an easy process that will free people from their worries is a marketing ploy used by businesses to get more people to use their services. Certainly, many debt consolidation companies have helped consumers to salvage their financial reputations. Reputable companies help to negotiate deals that save their clients thousands of dollars in interest and fees. Many people have their homes and vehicles saved by the work performed by the debt consolidation companies.

Here are my thoughts on how consolidation should be used. Consider communicating with creditors personally if the debt is growing but not critical yet. It is often possible to renegotiate new loan terms if payments are currently being made on time. Get help if the payments are getting later and later and the debt continues to grow. Consolidation will only work if the debtor has the means to cover their debts. Bankruptcy may be the only solution if meeting the financial obligations will be challenging even after a restructuring is complete.