Alternatives to a Debt Consolidation Loan

If ridding yourself of potentially harmful credit cards, reducing your monthly expenditures and saving money you would have otherwise thrown away on interest aren't enough reasons to convince you to enlist the aid of Consolidate Debt Financing, you're invited to explore other options that promise to get your budget back on track:

Bankruptcy

There are two types of bankruptcy available for consumers who find themselves hopelessly buried in debt: Chapter 7 and Chapter 13. A Chapter 7, which is also know as a straight bankruptcy, involves selling off all of your possessions--excluding the things state law allows you to keep--and dividing the proceeds among your creditors. Per bankruptcy laws, the amount of money you paid each creditor satisfies the loan and your account is closed. While that leaves you with virtually nothing, it eradicates your debt and ostensibly allows you to start over again with a clean slate. Chapter 13, also known as reorganization, staves off lenders from repossessing your property while allowing you three to five years to catch up on your debt. To be approved for this course of action, you must present the bankruptcy court with a plan to pay off your debt in the allocated time frame.

While either option might seem appealing on the surface, there's a handful of harsh downsides that make filing for bankruptcy an absolute last resort. First and foremost is the havoc it will reap on your credit report. Seeing the word "bankruptcy" in your credit history will send lenders and creditors running in the other direction ... and it's doubtful they'll come back until after the 10 years it takes for bankruptcy to fall off your report. So if you have to sell off your furniture, car or even your house in accordance with the terms of the bankruptcy, don't expect to finance their replacements. Plus, there's the expense involved. Filing the initial paperwork in federal court will set you back somewhere between $160 and $180, and a bankruptcy lawyer's fee for preparing said paperwork will likely be around $1,500, give or take a few or several hundred dollars. A loan through Consolidate Debt Financing makes much more sense than paying all that money just to convince a court you're broke.

Debt Management

Although some debt management companies refer to the service they offer as "debt consolidation," it's quite a bit different than a loan obtained through Consolidate Debt Financing. Rather than pay off your existing balances, a debt management company will negotiate with your creditors and convince them to accept less than the amount you actually owe. Then it collects from you a monthly payment, which it uses to pay your creditors. Naturally, there's also a fee attached to your monthly bill, which the debt management company keeps.

While this method might actually help get your finances in order, there are several drawbacks to using a debt management company's services. Among them is the fact that instead of showing each account as "paid in full," your credit report will indicate only that they were "settled." To most conventional lenders, that's no different than having a Chapter 13 bankruptcy. Also, you'll still end up paying plenty of interest charges in addition to the debt management company's service fee, which--by the time the accounts are paid off--could end up costing you a bundle. Furthermore, some shadier outfits have been known to negotiate lower payoff amounts than they reveal so they can pocket the difference.

Credit Repair

Some companies claim to have the legal pull to "clean" your credit report by removing negative entries--for an exorbitant fee. These "credit cleaners" accomplish this by filing a dispute with each creditor that has reported a delinquency, and then waiting 30 days. By law, if a creditor doesn't respond within that time frame, the item in question has to be removed from the consumer's credit history. And considering the volume of late payments and delinquencies credit card companies are dealing with these days, the plan usually works--but only for a while. When the creditor gets around to determining there's no basis for the claim, the derogatory item reappears on investigating the claim, the derogatory item reappears on your credit report. So after shelling out a lot of money to have your credit report cleaned, your situation will end up unchanged. By legitimately paying off your balances with a loan through Consolidate Debt Financing, there will be no chance of this happening.