Louisiana is home to millions of debtors. One thing that they all have in common is the desire to live a debt-free life. With this in mind, many of them pursue debt relief options to help them get closer to that ultimate goal. Debt consolidation tends to top the list for many debtors as it allows them to combine multiple streams of debt into one large monthly payment, but it is not as beneficial as it seems. Here are six important facts about debt consolidation.
Debt Consolidation Does Not Eliminate Debt
Credit counseling agencies often advertise debt consolidation as a debt relief option, which leads many to believe that the process will erase their debt. Debt consolidation only merges balances into one payment and potentially lowers interest rates, but that is not always the case. The only way to eliminate debt is to file a Chapter 7 bankruptcy.
You Cannot Consolidate Federal and Private Student Loans Together
You are eligible to consolidate student loans after graduating, leaving school, or enrolling as a part-time student. If you choose to pursue student loan debt consolidation, you must do federal and private loans separately. The only way to manage these loans collaboratively is to refinance them; but once you do so, you’ll be ineligible for any loan forgiveness program.
Credit Counseling is Separate from Debt Consolidation
Credit counseling agencies enlist the services of certified counselors who can help you budget your funds. They look at all of your finances and not just your debt. Your counselor may suggest debt consolidation as an option, but the agency itself does not consolidate debts.
Credit Counseling Agencies Aren’t Always Nonprofit
Although a majority of credit counseling agencies are nonprofit, many are not. They often charge administrative fees and upfront fees for their services. For those who mistakenly believe that they are paying for debt consolidation services when they sign up for credit counseling, this can be something to pay close attention to.
You Get a New Lender When Consolidating Debts
When you consolidate your debts, you get a new lender. The lender’s job is to pay off your original creditors with the payments you make to them. Most debt consolidation services advertise this as a bonus, but there is often an increased interest rate as a result.
The Advertised Interest Rate is not Guaranteed
Debt consolidators often promote their services by guaranteeing a lower interest rate. Like with any other loan, lenders select your interest rate based on your credit score. If you have poor credit — which most debtors in search of debt relief options do — you can expect to get an interest rate that may be higher than the ones from your original accounts.
The entire debt consolidation process is a hoax to swindle debtors out of the little financial resources they have left. Instead of paying off creditors, your consolidator may hold onto your payments with the hopes of third-party collection agencies suing you for the debt and not having proof that it belongs to you. When it comes to light that they do have proof, your consolidator collects their fees and leaves you worse off than before.
Don’t allow yourself to fall deeper into debt in an attempt to avoid bankruptcy. E. Orum Young Law Offices has filed over 20,000 bankruptcies in Northeast Louisiana and specializes in freeing consumers from the grips of debt. Our Trial Guarantee ensures that we will go to trial per your request. Contact us today to discuss your bankruptcy options.