Debt Consolidation may be better then bankruptcy
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Common Questions

Q:

Should I consider getting a loan instead of credit counseling and/or a debt management program?

A:

To obtain a low interest loan to pay off debts usually means pledging the most valuable item a person owns, such as their house. With this low interest loan one can then pay off high interest credit cards and concentrate on paying off the secured house loan. Now, while this option may be good for some people, there are a few fundamental problems. One, you are betting your most valuable item in the world that you can make all your payments on time, your home. Although almost all debt consolidation programs insist on timely, regular payments, they are likely to be more willing to work with you if you need to make one or two late payments due to a medical or some other emergency. Pledging one’s very home to pay off excessively high interest payments and debt should be avoided.

Here is another problem with the low interest loan option: You’re not taking advantage of the breaks on interest and sometimes even the principal that a credit counseling service can negotiate on your behalf. Finally, research shows that within a year after consumers transfer credit card debt to a secured loan the credit cards continue to be used and actually have higher balances than before the home loan. The result: You now have not only high interest credit card payment obligations but also a debt requiring repayment against your home. In a study of the efficacy of debt consolidation loans through banks, the FDIC concluded, “some consumers will increase credit card and other consumer debt after a debt consolidation package is completed, thereby weakening their ability to repay outstanding debts and increasing the likelihood of bankruptcy.”

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