Seeking Debt Consolidation? Seek An Experienced Lawyer First

If your debts have reached a point where they have become difficult to manage, with varying due dates and interest rates and fees, working out a system to effectively pay them down is important.
Getting a handle on those debts is important. How you do that is equally important.

Our bankruptcy lawyers in Kentucky know that one of those ways is through debt consolidation. But here again, how you go about that can be just as important as initiating the process.

Far too many people put their trust in companies advertising cheap debt consolidation services. These can be tempting; after all, you don’t have much to spare to begin with. However, these firms, which often employ individuals with scant legal knowledge, may end up costing you more in the long run.

When it comes to debt consolidation, there are a fair amount of myths and misrepresentations. To help you understand more of what it is, what it isn’t and whether you might benefit, consider the following:

  • Debt consolidation services aren’t going to “cut your payments in half,” no matter what the advertisers say. These firms are merely fudging the numbers. Let’s say, for example, that you have missed two, $200 payments on a balance of $200. That third month, you’re going to owe $600. A debt management worker may negotiate to re-age that bill so that your payment is now back down to $200. But that doesn’t mean you’re actually paying or owing any less than you did before. You may be able to work out a deal whereby your interest is reduced, but you’re not going to slash your payments by half.
  • Debt settlement is not necessarily the cheapest way to go. In fact, debt settlement firms often prey on those who are hoping for a miracle. You pay the debt settlement company, which holds onto that money until they can negotiate a lower settlement with the collection firm. Meanwhile, you’re still getting collection notices. Some companies will even sneak in fine print indicating that if you miss a payment to them, they’ll keep the money you’ve paid them thus far as part of a fee. And if in the end the original collections firm does forgive any amount of the debt, that will be considered income to you for tax purposes and you’ll have to pay on it – in addition to paying the debt settlement company.
  • A debt consolidation plan should save you money – at least 5 to 10 percent, even when you factor in fees and voluntary contributions. But not everyone offering to help you with this process will or can do that. The consumer protection oversight in this arena is frighteningly lax. With an attorney, you know you are getting someone who is educated and, at the very least, answers to the state bar association.
  • Debt consolidation isn’t necessarily better than bankruptcy. This is especially true because, ultimately, sometimes people are headed in that direction anyway. Struggling for years only to have to surrender to a liquidation process in the end only means you have lengthened your financial recovery. It’s always worth it to explore bankruptcy alternatives. However, it’s equally important not to let the word alone scare you. Be open to the possibility that it could well be the best option for you.

If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.

Additional Resources:
10 Debt Consolidation Myths, Staff Report, October 2013,
More Blog Entries:
Living Paycheck-to-Paycheck? You Aren’t Alone, July 18, 2013, Kentucky Bankruptcy Lawyer Blog

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