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How Can I Legally Restructure Or Consolidate my Debt



There are many different ways that consumers can restructure or consolidate their debt. However, some ways are smarter and produce better results than others, such as:

  • Using credit such as a second mortgage
  • Using a consolidation firm
  • Filing for bankruptcy

Use Credit to Your Advantage

Some people choose to consolidate their debt by taking out one large loan, like a second mortgage, and use the cash to pay off car loans, student loans, or credit card loans. This is a wise decision if you qualify for a reasonably larger loan and the repayment terms are within your means. You will have a lower interest rate on the larger loan than you do on smaller loans. If you do not meet those conditions, it is not worth it because you will not save any money.

Use a Consolidation Firm

Many consolidation companies have cropped up recently due to the economic depression. These companies offer to help you consolidate your loans. It may initially sound like a good idea, but make sure you look at the fine print. Most likely, you will find that these companies will offer you a large loan at an astronomical interest rate. You can then use the cash from the loan to pay off your smaller loans. It sounds good, right? However, the interest rate you will end up paying on that new large loan is usually significantly higher than the rate on the debt you are trying to pay off. For example, let's say I have a credit card that I pay 10 percent interest on and a car loan that I pay 6 percent interest on. I am paying 16 percent total interest. In order for a consolidation plan to make sense, the loan I use to repay my car loan and pay my credit card off would have to be less than 16 percent.

File for Chapter 13 Bankruptcy

In the most extreme cases, reorganization under Chapter 13 bankruptcy might be the best answer. Chapter 13 allows debtors to reorganize their debt and repay it within a schedule set by the court that hears the case. Filing for bankruptcy has many advantages but also many disadvantages, so it is wise to consult with a bankruptcy lawyer first.

Deciding to reorganize or consolidate debt can be a wise choice if it is done correctly. Make sure your reorganization or consolidation plan allows you to pay the least amount of interest possible, and always contact a professional if you have questions.

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