The vast majority of Americans carry some level of debt. When financial pressures are high, you may be searching for relief options. Due to the stigma attached to bankruptcy, a debt consolidation loan is a tempting alternative. Debt consolidation loans combine your existing debts into one payment, making it a bit easier to manage your payment and reducing your interest rate.
Debt Consolidation Options
There are two kinds of debt consolidation loans. One requires the use of your home as collateral. This option can put your home at risk. However, if you eventually need to file for Chapter 7 bankruptcy, this form of debt consolidation reduces the amount of equity you have in your home, increasing the chance that you will be able to keep your home under Georgia’s exemptions. These legal exemptions allow for $21,500 in home equity or double that if you are married.
Another option is an unsecured debt consolidation, which does not require collateral. Instead, this form of debt consolidation pays off all of your existing creditors in exchange for one new loan.
Both options typically offer a lower interest rate. The lower interest rate and, often, longer repayment term results in lower monthly payments. However, the low-interest rate is sometimes just a temporary, introductory rate, so read the fine print carefully.
Before you agree to a debt consolidation loan, make sure you do your homework. Although debt consolidation companies are governed by Georgia’s Debt Adjustment Act, which limits the fees allowed to be collected and requires certain business practices, this does not mean that debt consolidation is always advantageous for you. The interest rate, fees, and repayment term may create a greater financial burden for you than the original loans. Make sure that you do the math to determine:
- The full amount you will repay in your current loan payment plans
- The full amount you will pay with the proposed debt consolidation loan
- Your ability to meet the monthly payments required under both options
If the consolidation will increase the amount you pay over time, it would be wise to seek other options. Similarly, you should not commit to a debt consolidation loan that you know you cannot pay each month.
When it is Time for a Debt Consolidation Loan
Once you have considered all of the above, you are closer to determining whether or not a debt consolidation loan is for you. In particular, debt consolidation might be for you if:
- You have extremely high-interest rate debts
- You qualify for a very low-interest rate loan
- You have the income needed to make payments
- You have a plan to remain out of debt once your loan is paid off
If you will not be able to pay off the debt consolidation loan or otherwise do not meet the qualities listed above, you will want to explore other options that may be more suitable for your situation.
Contact an Attorney Today
Before you make any decisions about managing your debt or engage in debt consolidation loans, contact the experienced attorneys at Cornwell Law Firm. We will help you to determine the best option for dealing with your debt, even if it is not declaring bankruptcy.