This week we are looking at tips to avoid personal bankruptcy. Yesterday we discussed the Do It Yourself Approach to Avoiding Bankruptcy. The next step to consider is a debt consolidation loan.
A debt consolidation loan does not reduce your debts, but it can help you save money. If you currently owe $50,000 on five different credit cards, and each credit card carries an interest rate of 19%, you are paying almost $800 per month in interest. If you could get a $50,000 debt consolidation loan from the bank, at an 8% rate of interest, your monthly interest would drop to $333 per month, so you can devote more of your monthly payments to repaying the principal, and less to paying interest.
If all you need is a break in the interest you pay, a debt consolidation loan may be the correct solution for you. However, there are two catches:
First, you need to find a lender that will give you the loan. In the above example you need to borrow $50,000; that’s not easy to do in these days of tight credit. You may need security (such as a house) or you may need a co-signer to qualify for the loan.
Second, even with a loan you are still carrying a lot of debt, so you will need to decide whether or not a loan is the solution to your problems.
Tomorrow we’ll discuss what to do if the bank says “no” to your request for a debt consolidation loan.
