Why Debt Consolidation Isn’t Always the Best Solution: A Bankruptcy Attorney’s Perspective

women sitting on bed with calculator and credit cards laid out with cash

Financial distress can feel overwhelming, and finding the right path toward resolution can be challenging. Two common strategies that individuals consider when addressing this crisis are debt consolidation and bankruptcy. Both options present potential advantages and disadvantages and must be approached with a clear understanding of the individual’s unique financial circumstances. In this post, we’ll compare these two approaches from a bankruptcy attorney’s perspective, focusing on why debt consolidation, despite its appeal, isn’t always the best solution.

Every Financial Situation is Unique

As a bankruptcy attorney, I have had the privilege of advising countless individuals through the often-turbulent seas of financial difficulty. With each case, I have come to appreciate that every financial situation is unique, with different factors at play. One common theme, though, is that there is rarely a one-size-fits-all solution when it comes to resolving debt. While debt consolidation is often touted as an easy way out, it’s not always the best choice for everyone. 

Here’s why:

  • Long-term Cost: Debt consolidation can indeed simplify your payments by combining them into a single monthly bill. It may also lower your monthly payments. However, this is often accomplished by extending the term of the loan, meaning you could be in debt longer. Throughout this extended period, you might end up paying more in interest than you would have paid by tackling each debt individually.
  • Potentially Higher Interest Rates: Despite the promise of lower payments, debt consolidation loans often come with higher interest rates, especially if you have a low credit score. This can lead to increased costs over time, negating the benefits of consolidation. Credit counseling agencies and debt consolidation companies are for-profit organizations that can charge considerable fees, further exacerbating your financial situation.
  • Doesn’t Address the Root Cause: Debt consolidation is primarily a strategy for managing debt, not reducing it. It restructures your debt but does not eliminate it. While it can give you some breathing space, it doesn’t address the underlying issues that led to the debt in the first place. Without a comprehensive financial plan that includes budgeting, spending changes, and possibly income enhancement, the cycle of debt can easily continue.
  • Risk to Assets: Debt consolidation often requires collateral in the form of a significant asset, such as your home. If you are unable to make the payments, you risk losing this asset. This is a significant consideration that is often glossed over when debt consolidation is presented as a simple solution.
  • Impact on Credit Score: Depending on how it is done, debt consolidation can negatively impact your credit score. Opening a new credit account, which is often necessary for debt consolidation, can decrease your average credit age and lead to a temporary dip in your credit score. In the long term, this could affect your ability to secure favorable credit terms.

On the other hand, bankruptcy – while it is certainly not a decision to be taken lightly – can offer a legal and more structured way to handle overwhelming debt. It can provide a fresh start by possibly discharging certain debts or creating a manageable repayment plan. Unlike debt consolidation, bankruptcy addresses not just the symptoms (the debts) but also the disease (the inability to pay).

Before you consider either path – debt consolidation or bankruptcy – it is crucial to seek sound legal advice. Speak to Joel R. Spivack, an experienced bankruptcy attorney, to understand the full picture and then weigh your options. There is no ‘right’ solution, only the one that works best for your specific circumstances.

Contact A Local Bankruptcy in Cherry Hill, NJ Today!

Debt consolidation, while a helpful tool for some, may not always be the best solution for handling overwhelming debt. It’s essential to keep in mind that the right solution will be different for everyone, depending on their unique circumstances. Contact the Law Office of Joel R. Spivack today for a free consultation about your specific circumstances at 856-488-1200.

The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.



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Attorney Joel R. Spivack is an experienced bankruptcy and residential real estate transactions lawyer in Cherry Hill, New Jersey. Clients come to us for legal services, but what we really provide is peace of mind. For more than 30 years, Attorney Spivack has helped people make wise, informed decisions about bankruptcy filings, debt relief options and residential real estate transactions.
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