If you are struggling with debts that you cannot pay, the promises of a debt consolidation company may sound comforting. Lowering interest rates, reducing finance charges, stopping creditor calls, only having one unsecured debt payment per month, and eliminating your unsecured debt sounds like a lifeline for anyone struggling with overwhelming debt. However, while a debt consolidation company promises many things, there are things that a debt consolidation company will not tell you.
Your Debt Consolidation Company Will Not Tell You
- The debt consolidation company charges expensive fees. The company is not going to help you resolve your debt without making a profit. People are charged monthly fees and expenses for the service. In some cases, the fees charged by a debt consolidation company can add up to more than the person is saving over the term of the contract. Filing bankruptcy is a one-time fee.
- Not all of your creditors must participate. Debt consolidation is not mandatory for your creditors. Some creditors may choose to continue collection efforts. Furthermore, a creditor can choose to file a collection lawsuit at any time – even after you have been making payments for a few years. Creditors do not have a choice to “opt out” of a bankruptcy case.
- One monthly payment does not always save you money. Even though creditors may lower interest rates and stop charging late fees, when you add up the amount of money you are paying over the term of the contract, in addition to the fees charged by the debt consolidation company, you may be paying more debt. In order to lower your monthly payment, a debt consolidation company spreads the total debt out over many years. The total figure you pay could actually be higher than what you would pay if you continue paying your creditors each month. Bankruptcy eliminates most, if not all, of your debt immediately.
- Debt consolidation can have tax consequences. If a creditor “forgives” a portion of your debt, the creditor is required to report this amount to the IRS at the end of the year. In most cases, you will be required to report this “forgiven” debt as income on your tax returns. This could substantially increase the amount of taxes you owe for that tax year. Debt forgiven through a bankruptcy filing does not have this effect on your taxes.
Unfortunately, if you do not have the money each month, after paying your living expenses, to pay toward your debt, a debt consolidation company will not help you increase your income. You are only combining debt that you cannot pay into one payment rather than eliminating that debt. Bankruptcy will get rid of most, if not all, of your unsecured debt to give you a fresh start with a clean slate. Contact my office to discuss your bankruptcy options.
Contact an Experienced Mount Holly Bankruptcy Attorney
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The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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