To a person with more credit card debt than they can pay, debt consolidation may seem like a way out. Combine debt into one monthly payment at a lower interest rate.
Unfortunately, debt consolidation doesn’t solve the problem of too much debt. Instead, it leads to more debt over a longer period of time.
What is debt consolidation?
Debt consolidation combines your monthly credit card bills into one loan. When you consider the cost of consolidating your debt, you will actually owe more money than you did before. You have simply spread payments over a longer period of time. You could face years of debt that makes it harder to keep on your bills.
For many people, filing bankruptcy is a better option. By filing Chapter 7 bankruptcy, you can get rid of 100 percent of credit card debt, providing you with a clean financial slate. You can also discharge other types of unsecured debt, such as medical bills and payday loans.
If you have significant credit card debt, you should explore all of your options, including bankruptcy. One thing you should not do is dip into retirement savings or skip car payments. By doing so, you would be robbing from yourself to pay the credit card company. You can keep assets such as your retirement savings, your vehicle up to a certain value and equity in your home if you file bankruptcy.