Bankruptcy is one of the fastest and most thorough solutions that can effectively address significant personal debt. People can receive relief from collection efforts the same day they file. They can discharge certain eligible debts, eliminating the need to pay those debts.
Despite how effective bankruptcy can be, many people want to avoid a bankruptcy filing at any cost. Often, they turn to certain financial solutions that promise to help them regain control over their debts and their household budgets. Unfortunately, many modern debt solutions are likely to worsen their financial challenges. For example, the following “debt solutions” may do more harm than good for a person seeking relief.
Credit card balance transfers
Credit card debt is a common source of financial stress. Some people accrue a huge balance due to unexpected expenses. Others have a balance that builds slowly over time because they cannot pay their statements in full every month. Transferring a balance from one credit card to another may temporarily reduce payments. However, between fees and deceptive low-interest offers that can hit someone with two years of interest all at once, balance transfers tend to leave people in worse debt than they were in when they initiated the transfer.
Debt consolidation
There are certain lenders who offer loans to help people pay off credit cards and other unsecured debts. These loans may require that someone use their vehicle or other assets as collateral. Even if there is no collateral property, the loan may represent a significant increase in someone’s overall debts. Especially if they continue using their credit cards after taking on a consolidation loan, they may end up with far more debt than they had at the beginning of the process. They may also owe interest and loan origination fees to the lender.
Debt settlement services
Companies openly advertise debt settlement services for credit cards, medical debts and other financial obligations. They claim to handle the negotiation process so that people with high levels of personal debt can reduce the total amount that they owe. The fine print on such offers often involves taking a loan from the settlement service provider to make lump-sum payments to individual creditors. People often fail to realize that creditors can report a debt as settled rather than paid in full on their credit report. Debt settlement can drag down someone’s credit score and leave them with large payments owed to the company that settled their debts.
Many debt solutions only delay someone’s obligation to pay their debts in full. These approaches may actually leave people more vulnerable to lawsuits and the loss of valuable resources. Learning more about personal bankruptcy can help people understand why it is often a better solution than other debt resolution options. A successful bankruptcy finally can eliminate debt instead of simply moving it from one creditor to another.