Occasionally, I meet people who can make a payment to some of their credit cards, but not to all of them. Maybe you can (barely) afford your minimum payments now, but one of them raises the interest rate and you can no longer make the payments. Does debt consolidation work?
How do you choose which credit card or cards to pay, and which to ignore? Is there an easier way than to only give some payments and ignore others?
The answer is, “yes.”
The Radio Outfits Don’t Work
We’ve all heard of debt consolidation companies, usually advertising on the radio. These outfits, some of them not fly-by-nights, promise to accept one payment each month and give it to your credit card companies. However, how do they determine what that payment amount is? Assuming you can afford the payment, exactly how long will it take you to pay them all off? What percentage of people who start these plans finish them? And most importantly: will debt consolidation protect you from a lawsuit when (not if) one of these companies gets impatient and sues you?
The Problem with Debt Consolidation
It sounds good in theory, but it just doesn’t work. Why not? Because your payments don’t go to the credit cards each month. The middleman holds them. The credit card companies compete to settle. Maybe one does. That means the others didn’t. Then you’re sued. The middleman doesn’t help you. You need to file bankruptcy.
The Solution that Works
In many cases, a Chapter 13 bankruptcy might be the answer. It’s like a debt consolidation plan. The federal government runs it, not a here-today-gone-tomorrow place. You pay only what you can afford, not what they demand. In a Chapter 13 bankruptcy, the number of payments you make is set; you make them and you’re out of debt, even if all the debt didn’t get paid. And yes, you get all the powerful protections of a bankruptcy, including stopping lawsuits, garnishments, and collection calls.
Debt Consolidation in Chapter 13 Example
So, what does this look like? Let’s use a hypothetical example (your mileage may vary). You are earning, say, $2500 a month after taxes. Your rent, utilities, gas, food, etc. each month comes to about $2000. That would leave you $500 a month for your 4 credit cards and debts each month. If they each want $100 minimum, you can afford that… but you are not getting out of debt… you’re just treading water. On the other hand, if each of the four credit card demands $200 each, your $500 won’t be enough to make them all happy and off your back. If you file Chapter 13, creditors accept the $500 payment, and share it. You pay a set number of months. Then you’re out of debt. Even if all those payments weren’t enough to pay all of your debt in full. You’re done anyway.
Do you want to freeze interest rates, penalties, late charges and just make a set number of payments and be out of debt, once and for all? Do you want the peace of mind that comes from knowing you won’t be sued for your debt, and that the people you’re paying — the US Government — are here to stay? If so, filing Chapter 13 just might be the answer.
Contact an expert to get out of debt now.