Friday, May 23, 2008

Debt Consolidation — An Alternative to Bankruptcy

Bankruptcy is when a person or business officially declares absolute inability to pay back creditors the money that is owed. This should only be done as a last resort, because bankruptcy may affect every aspect of your financial life.

It will most certainly affect your ability to get loans, mortgages, and credit cards for a certain period of time. In Denmark at least 2-5 years. However, for some people, declaring bankruptcy means finding release and freedom again. It wipes your slate clean so to speak, and you can start all over again. You can rebuild your credit situation.

However, there are a number of things you should try before you declare bankruptcy. One such thing is called "debt consolidation." Debt consolidation cannot help everybody concerned with money problems, but for many, it will be the thing that keeps them from being forced to declare bankruptcy.

What Is Debt Consolidation?

Debt consolidation is basically taking all of your loans and paying them off using one large loan. You then have one monthly bill to pay instead of a number of smaller bills. This can save you money in the long run. Why? The one large loan will usually have a secured lower fixed interest rate. This is especially useful if you would otherwise be forced to declare bankruptcy because of high credit card debts.

Credit cards have very high interest rates — often much higher than any other kind of loan. If you miss just one month of paying your card in full, you may never get back on track paying off your balance.

This can really start to add up if you find that you have more than one card. If you are far into debt, you can probably not get any unsecured loan from a financial institution, like a bank. However, you should be able to get a secured loan. A secured loan uses your house, car, or other possessions as collateral. With a lower interest rate, you can start making headway into your debt instead of simply making the minimum monthly payments because paying off so little will only pay off debts, and prove to hold you down in your debts. Debt consolidation could help you avoid bankruptcy.

Consolidating your debts may not be the best choice for everyone. In fact, in many cases, bankruptcy is really the best way to get back on track.

However, it is important to realize that you have choices. If you don’t have to declare bankruptcy, avoid it and you will find that your life will be financially easier to handle in the future. It depends on your unique situation. Talk to a financial professional if you want more help learning about debt consolidation.

Also, you should remember that you shouldn't wait until things look REALLY bad before taking action. Most people are only faced with filing bankruptcy because they left well enough alone for far too long...

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