Thomas F. Miles, Attorney and Counselor at Law
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Can consolidation offer a path toward debt reorganization?

Anyone who has struggled with high levels of debt knows how stressful it can be to feel helpless in the face of mounting bills. Many California residents will consider a wide range of debt relief options before choosing a course of action, including debt consolidation. Understanding the pros and cons of using consolidation as a means of debt reorganization can help consumers to make the best possible choice for their own unique financial scenario.

Debt consolidation is the process of obtaining a new loan for the sole purpose of paying off several smaller debts. The borrower can then make payments on fewer accounts each month and can save a significant amount in interest charges and fees. One way to pursue debt consolidation is to open a new credit card and to then transfer the balances owed on several other cards into the new account. Another practice is to take out a consolidation loan, which is offered through many different lending sources.

In order to make consolidation a success, consumers must look closely at the terms and conditions of a consolidation offer. Be sure to calculate the total cost of the loan and determine how much interest will be paid by the time the loan is paid off. In some cases, consumers will end up paying more for the consolidation effort than they would have paid had they worked directly with their creditors.

Consolidation is a legitimate path toward debt reorganization, and it can yield favorable results for many in California. However, there are certain circumstances in which a more aggressive form of debt relief is called for. When repayment is simply not possible, regardless of the terms, many consumers turn to personal bankruptcy as an alternative path to debt relief and a fresh financial start.

Source: Investopedia, "Debt Consolidation: When It Helps, When It Doesn't", Mark P. Cussen, May 22, 2014

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