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Irvine Bankruptcy Lawyer / Debt Consolidation

If you are overwhelmed with debt and struggling to make ends meet, you are likely looking out for anything that can be helpful. You might be leery of filing for bankruptcy because you are unsure of what it actually does, so you are checking out other options. One idea you’ve probably heard about is something called debt consolidation. Debt consolidation has its pros and cons, and it might be a good choice in some cases, but overall we think bankruptcy is better. Read on to find out why. For a more thorough discussion, and one that is tailored to your particular needs, call The Law Office of Charles A. May for a free consultation with a skilled and knowledgeable lawyer. Charlie May is not just an experienced attorney. He’s your counselor, your advisor, and your guide to finding effective, affordable and lasting debt relief in Orange County, Los Angeles and Southern California.

What You Need to Know About Debt Consolidation

In debt consolidation, you take some portion or all of your outstanding debt and put it together – credit card debt, medical bills, personal loans, or whatever else you have. Then you take out a new personal loan and use the proceeds from that loan to pay off the consolidated debt. The idea is that the new loan you get has a lower interest rate than the other bills you were paying so that your monthly payment on the consolidated debt is less than all the other payments if they were separate.

Debt consolidation is not refinancing. Refinancing applies to a single loan and refers to the process of replacing that loan with a new one at a lower interest rate.

Debt consolidation is not a credit card balance transfer either. A balance transfer refers to taking out a new credit card and transferring your other debts to it, or transferring the balance on a high-interest card to one with a lower interest rate. The problem with balance transfers is that the low interest rate is typically only an introductory rate that skyrockets after a few months, making you at least as bad off or worse than you were on your previous card.

When is debt consolidation a good idea? If you are stuck with a large amount of credit card debt or a variable-interest loan that reset at a high rate but you otherwise have pretty good credit, then it might make sense to consolidate those debts onto a new personal loan, assuming you can get one at an appreciably lower interest rate. Make sure the loan period isn’t too long, or you could wind up paying more overall, even at a lower interest rate.

When is debt consolidation a bad idea? If your credit isn’t very good, which is common for people struggling with large amounts of debt, then you probably won’t be able to get a debt consolidation loan at an interest rate that is any better than what you are already paying on your other debts. Not only won’t the debt consolidation loan help, it will just extend the time you are in debt, and you’ll likely end up paying more on the new loan than you would have had you not consolidated.

Finally, debt consolidation doesn’t make any of your debt go away. It just refinances the debt and extends the payment period, so if you are struggling to get by, you won’t really get any relief when it comes to managing your monthly expenses versus income.

Why Is Bankruptcy Better?

In contrast to basically refinancing all your existing debts into one big loan, Chapter 7 bankruptcy actually eliminates those debts and gives you a fresh start. There is no better way to deal with overwhelming debt than to get rid of it through a Chapter 7 discharge. Chapter 7 won’t eliminate secured debts like a home mortgage or car loan, and it won’t get rid of certain tax debts or unpaid alimony or child support, but it will do away with credit card debt, medical debt, personal loans, and many other types of unsecured debt, including even certain tax debt and student loan debt if you can prove undue hardship.

If you don’t qualify for Chapter 7, you can file for Chapter 13, which you’ll find is still better than loan consolidation. Like loan consolidation, Chapter 13 brings all your debts together in one place and puts you on a repayment plan that lasts three or five years, depending on how much disposable income you have to service the debt. The difference is that Chapter 13 lets you adjust your debts when creating the repayment plan. On many of your unsecured debts, you’ll only have to pay a small portion of what you owe, and at the end of the plan, what remains gets discharged.

Call The Law Office of Charles A. May for Help With Bankruptcy

Every situation is unique, but everyone struggling with debt has the same goal – to get out of debt. Whether debt consolidation can help you do this, or whether bankruptcy makes more sense, is a question that can only be answered after looking at your specific circumstances. At The Law Office of Charles A. May, we offer a free consultation to review your finances and let you know how we can help. If Chapter 7 or Chapter 13 bankruptcy is the solution you need, you can count on us for expert advice and assistance to guide you along the way.

For help with bankruptcy in Orange County, Los Angeles or Southern California, call The Law Office of Charles A. May to speak with a compassionate and dedicated bankruptcy attorney.

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