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  • Writer's pictureDaniel Rodriguez

The Pros and Cons of Debt Consolidation in California

Types of Debt Relief There are generally four different types of debt consolidation an individual could choose from:

  1. A credit card balance transfer

  2. A debt consolidation loan

  3. A home equity loan

  4. A personal loan A credit card balance transfer allows a debtor to take the balance from various credit cards and transfer it to a single credit card. This would allow a debtor to make a single monthly payment on all of their credit card bills with, hopefully, a lower interest rate. However, consolidation of credit card debt is not without its pitfalls as well. For instance, some debt consolidation companies may offer lower interest rates for a limited time, but after that time is up, a debtor may end up paying off their debt at a higher interest rate than they originally expected. Another issue to think about is that consolidating your credit card debt could lower your credit score until you have made good progress with your payments. A debt consolidation loan differs from a personal loan, which is described below, because a debt consolidation loan is borrowed for the specific purpose of paying consolidated debt. A personal loan could theoretically be used for anything, but a debt consolidation loan is controlled by the lender who pays off the borrower’s debt. The borrower will not even touch the money from a debt consolidation loan. A debt consolidation loan is not always beneficial for a debtor. First, a debtor generally needs a good credit score to obtain the loan in the first place – and moreover, if a debtor wants a lower monthly payment, they must typically extend their repayment period. A longer repayment period may mean a debtor would once again pay more than their original debt. A home equity loan is a loan that is secured by using the equity in your home as collateral. The amount of money you can borrow is tied to your income, credit history, and the equity or fair market value of your home. The downside is that your home can be foreclosed upon if the payments become unbearable. By comparison, Chapter 13 bankruptcy can help you avoid foreclosure. The final method, a personal loan, may also be used as a debt consolidation loan. Whether the debtor can receive a personal loan large enough to cover all their consolidated debt would depend upon the state of their credit score. Personal loans are usually unsecured, meaning the debtor does not need to put up property as collateral. If the debtor can obtain the loan, the idea is to use it wipe out their consolidated debt and make fixed payments to the creditor over a certain period until the loan is paid. However, debtors should be aware that having a high interest personal loan could cost them more money than their original debt.

Advantages and Drawbacks of Debt Consolidation in CA There can be pros and cons to consolidating your debts. Read on to see some of the potential benefits – and potential drawbacks – of this approach to debt management in California.

Benefits of Debt Consolidation There are some pros to debt relief in California to be considered. First, having all of your bills consolidated into a single bill with a single deadline would be less to manage than having multiple bills due all at multiple dates. Having to deal with multiple bills at various times can be stressful and having a single payment for all your debts would be ideal to some. One of the main benefits that attracts people to debt consolidation is the possibility of centralizing their debt and reducing their interest rate on payments as well. This would ideally allow debtors to pay less money on their consolidated debt than they would on their original debt. Finally, being in a debt consolidation plan allows a debtor to pay off their debt on a schedule that fits their income.

Cons of Debt Consolidation There are downfalls of debt consolidation that one should consider before determining if it’s best for them. The consolidation of debt is likely most effective when a person can curb their spending habits in order to make all their payments. Keep in mind, when a debtor defaults in making a payment on their consolidated debt, they will likely be reverted to the original creditor agreement they sought to avoid. Additionally, it should be noted that creditors are not required to accept debt management plans from debtors at all. One of the reasons debt consolidation may not always be preferred is that debtors must often commit to paying off their debts over a fixed period. This period usually lasts several years, which may scare away debtors who hoped the process would be quicker. By comparison, Chapter 7 bankruptcy can rapidly wipe out dischargeable debts, including medical bills and credit card debt, in a matter of months to a year.

Our Roseville Bankruptcy Attorneys Can Help You with Debt Management Debt consolidation is just one avenue an individual could take to handle their debt. While every case is unique and must be evaluated on its own merits, you should think about potentially filing for bankruptcy if debt consolidation is on your mind. Under the right circumstances, bankruptcy can offer several financial benefits which are lacking from debt consolidation. If you are curious about debt consolidation, bankruptcy, or debt relief in California, call the Roseville bankruptcy lawyers of The Bankruptcy Group today at for a free consultation.

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