As credit card balances increase, so do monthly payment obligations. Not only do borrowers need to worry about interest accruing on their credit cards, but they also have to cover fees if they make late payments or their balance goes over the credit limit for the account.
Some people turn to debt consolidation loans as a means of taking control of their credit card balances. However, those loans may not necessarily fix the situation.
The problems with debt consolidation
There are several issues associated with debt consolidation. While people eliminate multiple payments and make just one to their new lender, the total amount that they owe may stay the same or increase. The interest rate may be lower on the consolidation loan, but that does not resolve the debt putting pressure on the borrower’s finances.
Additionally, the act of paying off the credit cards to consolidate debt could result in the closure of multiple revolving lines of credit all at once. That can drag down an individual’s credit score significantly. People who don’t close their accounts when consolidating their balances may quickly accrue additional debt. They may find themselves in a much worse position than they were a few months prior.
Debt consolidation simply moves financial obligations from one creditor to another. Bankruptcy offers a more permanent solution. During bankruptcy, creditors have to cease collection activity. If the process is successful, the debtor can eliminate their eligible unsecured debts, including their credit card balances.
Bankruptcy can help people truly eliminate the financial strain caused by credit card debt instead of temporarily reducing their payments or slowing how quickly interest accrues. Exploring different solutions for high levels of credit card debt with a skilled legal team can help people regain control over their finances.