If your debt is becoming overwhelming, it is important to speak with a professional who can help you determine the best course of action. For example, if your debt-load is greatly disproportionate to your income and it is likely to remain that way for a long time, bankruptcy might be the right choice for you. If so, an attorney experienced in bankruptcy may be able to help you eliminate your debt or reduce it to manageable levels.
However, bankruptcy is not the best choice for everyone. Sometimes, various alternatives to bankruptcy can effectively help individuals to bring their debt back under control. One popular alternative to bankruptcy is debt consolidation. Essentially, debt consolidation rolls numerous debts into a single loan.
It is important to understand that there are many ways that you may be able to consolidate your debt. For example, if your debt is all on credit cards, you may be able to utilize balance transfers to a card with lower interest rates. However, this method can become dangerous quickly if you will not be able to pay off the balance in full before the lower interest rates jump after a specified period of time.
It is more likely that you will benefit from utilizing a Debt Management Plan (DMP) if your debts are scattered between credit cards, medical bills and so on. In order to use this method, you may need to pay an agency a fee each month in addition to your large, lump payment. The agency will then pay your creditors accordingly.
It is important not to use any method of debt consolidation without first consulting an attorney. Not all options are right for all consumers, nor are all debt consolidation options run fairly and legally. Consulting a professional will help to ensure that you are not taken advantage of and that your situation is not ultimately worsened by the option you are considering.
Source: Market Watch, “The best way to consolidate debt,” Gerri Detweiler, Feb. 18, 2014