Debt consolidation is a popular option for many bankruptcy seekers in Michigan. But before you consolidate, it’s important to do your research and weigh the pros and cons of such a major decision.
What is debt consolidation?
As the name implies, debt consolidation involves combining all your debts into a single loan with one monthly payment. This refinanced amount allows the debtors to pay off their creditors, avoid bankruptcy and get back on track financially. Notably, the interest rate on bankruptcy debt consolidation loans is usually lower than on a credit card or other types of borrowing. While this method is a fairly effective way of getting out from under large amounts of debt, it does not mean that it is right for everyone.
What are the benefits of debt consolidation?
There are several benefits that people can gain from debt consolidation. First, you will have one simple monthly payment instead of multiple payments to various creditors each month. This simplification makes it easier for the average person to manage their money and repay their debts in a timely fashion. If you have several high-interest credit card debts, debt consolidation can help you pay off these debts more quickly and avoid bankruptcy.
What are the downsides of debt consolidation?
Firstly, debt consolidation involves refinancing your existing debts into one big loan. This means that debtors will have to repay the new, consolidated amount over a longer period of time than they would under their original repayment schedule. Additionally, debt consolidation loans often have origination fees. This means that debtors will need to pay a certain amount upfront in order to take out the loan, which can make repayment more difficult from day one.
If you have multiple debts that are preventing you from getting ahead financially, debt consolidation can help. However, it’s prudent to weigh the upsides and downsides of this method before committing yourself to a new loan agreement.