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Why Chapter 7 is often a better choice than debt consolidation

It's common to notice advertisements for products or services when you need them and to tune them out the rest of the time. If you've been struggling with your finances, you may have noticed that there seems to be a lot of debt consolidation and debt relief programs that advertise both on the television and the radio.

You might even find yourself thinking that such programs could help you better manage your finances. However, you should keep in mind that it costs a lot of money to purchase that advertisement space. Those companies turn a tidy profit off of a service that they like to pretend they do for nothing.

In reality, many of these companies will simply consolidate your existing debts into another loan that you have to then repay to them. If you already find yourself struggling to make your necessary payments, then debt consolidation won't necessarily do much to relieve that burden. Chapter 7 bankruptcy may be a better option.

Paying off credit cards might mean racking up more credit card debt

One of the many reasons why debt consolidation can actually be dangerous for those struggling financially is that using a lump-sum payment to reduce the balance on your credit cards means that there's more money to spend on your credit cards.

You could wind up carrying the debt consolidation loan and maxing your credit cards out again if you are still struggling to cover your daily cost-of-living expenses. Instead of offering a solution, debt consolidation loans could leave you much farther in debt than you were when you first applied for their so-called "help."

Debt consolidation is a temporary fix, not a solution

Consolidating or partially reducing your existing debts won't address the issue of having an outstanding amount that you owe or the fact that your income-to-debt ratio is no longer sustainable. Debt consolidation programs can make you feel like you are in control, but they aren't really a solution.

You still have a substantial amount of outstanding debt impacting your credit and likely need to spend a large portion of your disposable income each month repaying creditors. Instead of just moving debt from one location to another, Chapter 7 bankruptcy allows you to get rid of that debt.

Chapter 7 proceedings can discharge your debt, freeing you from it

Debt consolidation programs simply move your debt from the control of individual creditors to one company. Sometimes, that move can feel beneficial because you pay a slightly lower interest rate or have lower monthly payments. The fact remains that you will still have to repay those debts in full.

In a Chapter 7 bankruptcy, those debts become a non-issue for your financial future. Provided that you qualify and successfully complete your bankruptcy proceedings, the result will be a discharge of your unsecured debts, such as credit card and medical debt.

In the place of having an obligation to repay thousands of dollars, you will instead have a financial blank slate that will free up more of your income for other expenses and provide an opportunity to rebuild a positive credit history. Instead of feeling frightened or intimidated, let your curiosity take over. How would your life be different if you didn't have to make credit card and medical debt payments every month?

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