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What to consider before consolidating debts

On Behalf of | Jun 9, 2020 | Debt Consolidation |

West Virginia consumers who want to gain control over their finances may be able to do so by consolidating their debt balances. Typically, individuals will use a debt consolidation loan to pay off their existing creditors. After paying off existing creditors, they will then pay off the new loan over a period of several months or years. It is important to note that consolidating debts doesn’t reduce the amount of money that a person owes to creditors.

Instead, it may allow a debtor to pay off credit card or other balances at a lower interest rate. In some cases, debtors may be able to reduce their monthly loan payments. Personal loans, home equity loans and credit card balance transfers are popular methods of consolidating multiple accounts. However, individuals may want to shy away from using a home equity loan to consolidate unsecured debt balances.

This is because home equity loans use the house as collateral. Failing to repay a home equity loan in a timely manner may result in a foreclosure or other negative consequences. In most cases, lenders can’t seize assets from those who default on credit card or other unsecured debts. Therefore, it may not be in a person’s interest to convert unsecured debt to secured debt even if it means receiving more favorable repayment terms.

Individuals who are struggling to pay their bills may want to consider consolidating their existing payments. If debt consolidation doesn’t provide sufficient relief on its own, debtors may also want to ask for debt forgiveness from their creditors. If necessary, an attorney may be able to help a person file for bankruptcy protection.