Debt consolidation loans work by taking out a loan on secured properties, like a home, and the money is used to pay outstanding debt. This could be a good tactic if you will be able to pay off several high-interest credit cards and loans. Often the one monthly payment will be less than the combined payments you were making on the debt.
In Chapter 13 bankruptcy you also pay back your debt, but at the end of the repayment period any remaining unsecured debt will be eliminated. Chapter 7 bankruptcy there is no repayments, your qualifying unsecured debt is discharged in three to six months.
Secured Loans
The drawbacks to consolidation loans are that you a turning unsecured debt into a secured one. If you miss too many payments, you could lose the home that you used for collateral. It’s difficult to pay the late fees and interest charges on your credit card debt on long-forgotten purchases. It is even more challenging to lose your home over long-forgotten purchases.
Be Honest With Your Budget
If you can easily afford the loan by honestly evaluating your budget and confident you can keep your income for the duration of the loan. Debt consolidation may be a viable option. Be cautious not to add more debt during the repayment period. You may find yourself in more debt than before you took out the loan and struggling to save your home if you can’t make the payments.
Another avenue open to you may be to file bankruptcy and eliminate your unsecured credit card and personal loan debt in as little as three to six months. Contact a McAllen bankruptcy attorney to determine if bankruptcy may be a better option for getting debt relief.