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Debt consolidation: Is it the right solution for debt relief?

For Florida readers who are seeking debt relief, debt consolidation programs may seem like an attractive and viable option. However, before turning to this path for debt relief, there are many factors to consider. Consumers may be surprised to know that there are often hidden risks with these operations and they may end up facing an even more severe financial situation.

Most debt consolidation programs have the consumer take out a low-interest loan for the purpose of paying off smaller debts with higher interest rates. Other debt consolidation paths can lead to transferring balances to a lower interest credit card or taking out a loan against the equity of the consumer's home. Any of these options carry a considerable amount of risk. Should a consumer fall behind on payments with any of these options, he or she could face foreclosure, collections agencies and an accumulating balance of debt and interest.

There are also statistics that indicate consumers who choose to use credit cards for debt consolidation will eventually accumulate even higher balances in the future. Therefore, it is reasonable to suggest that bankruptcy protection may be a more viable method of discharging most types of overwhelming debt. Bankruptcy will also offer a reprieve from creditor harassment and will halt negative consequences of debt, such as repossession or foreclosure.

Debt consolidation may not be the best option for a Florida consumer facing overwhelming debt. However, it is always beneficial to understand the benefits and consequences of every major financial decision. For debt relief and to understand more about the best option for a particular situation, it is best to seek a complete evaluation concerning each individual case.

Source: The Daily Journal, "Everyday Cheapskate: Debt consolidation can be deceiving", Mary Hunt, June 17, 2014

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