Before deciding to file for bankruptcy, it's important to explore all the options available to you. One is debt consolidation, in which you pool your debts into one combined account, obtain a loan for the total due, and make single monthly payments to your lender to repay what you owe. But is debt consolidation a viable solution? Below, the bankruptcy attorneys at The Gil Law Firm in Dothan, Alabama, answer this question and more.
Debt Consolidation Is Not the Same as Debt Management
One area that makes debt consolidation confusing for consumers is the fact that it's often used interchangeably with the term debt management. In reality, the two are not the same, so know the difference before you agree to either of these arrangements. With debt consolidation, you are essentially receiving a loan for your outstanding debts. Then, you repay your loan provider instead of individual creditors. With debt management, the provider does not give you a loan; instead, they negotiate lower payments or interest rates on your debts and you repay your creditors directly. Nothing is consolidated.
Focus on Getting the Loan
If you decide debt consolidation is the best way for you to avoid bankruptcy and get back on the right track, focus your energies on getting a loan from a reputable company. There are a lot of companies that will try to push other financial planning products on you, but in most cases, these are simply ways for the business to make a bigger profit. Your best bet for debt consolidation loans typically comes from credit unions and social lending firms. Be leery of any lender who tries to get you to purchase a slew of other products.
Know the Effect on Your Credit Score
When you're having financial difficulties, the last thing you want to do is make your credit score worse. A less-than-ethical debt consolidation lender could do just that; you want the services of an organization that will help you rebuild your credit. In both consolidation and management plans, credit reports usually take an initial hit, but it's how you manage your money afterwards that really matters. So, do your homework before picking a consolidator, and be sure they offer you tools to strengthen your score.
In some cases, debt consolidation may not be right, and bankruptcy could be the better option. To consider this possibility in more detail, contact The Gil Law Firm. Since 2000, they have been serving clients throughout Alabama, Georgia, and Florida. Call (334) 673-0100, visit them online, or message them on Google+ or Twitter to learn how to file.