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Debt struggles? Talk with an attorney before signing another loan

Is debt consolidation a smart move before filing for bankruptcy? Not always. In fact, there are hidden traps in many consolidation contracts.

Sure, the prospect of just a single payment in an affordable amount that is lower than the sum of one’s current assortment of bills may be tempting. But read the fine print in any consolidation agreements. The proposed monthly payment may be mostly applied towards a higher-than-normal interest rate. That could translate into years of indebtedness. The fine print may also reveal fees, either applied in the monthly payments or a separate, up-front charge. 

As a firm that focuses on bankruptcy, we understand that multiple bills can be a frightening prospect. However, we educate our clients about not only the protections offered by federal bankruptcy law, but also on ways of viewing their financial health. In particular, we caution against viewing all categories of debt as negative. In fact, some loans with low interest rates might be a good investment, such as auto or home loans. Those types of debt might be better paid off on their own, instead of consolidated.

Finally, our law practice also helps individuals struggling with debts to form new spending habits. Consolidating various loans without changing one’s behavior may create a false sense of security and encourage even more spending. Sticking to a budget instead of overspending may be a much better goal than consolidation. In fact, this rationale is similar to a Chapter 13 bankruptcy filing, where a trustee reviews an individual’s debt obligations in great detail and comes up with a realistic budget that includes a monthly payment plan.

Source: Wise Bread, “Beware of These Common Debt Consolidation Traps,” Dan Rafter, Jan. 20, 2016

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  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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Goldman & Beslow, LLC

Goldman & Beslow, LLC is a Federal Debt Relief Agency by an Act of Congress. We have proudly assisted consumers seeking relief under the U.S. Bankruptcy Code for over 38 years.

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