There are many ways you can put all your debts in one place, also known as “Consolidation.”  The way that comes to mind most frequently is where a loan large enough to cover most of your debts, if all is not possible. This is typically used for debts like medical bills and or credit cards. The purpose of consolidation in this manner is to reduce your individual debts so you have just one ideally, or at least very few. Instead, seven different credit cards which have seven different minimum payments, you now only have a single payment you send to one place. Often times, these loans have a fixed interest rate which is a bonus especially if the interest rates on your credit cards were different from month to month.

In theory, it is a pretty decent idea. There is a problem in practice (there always is) and that is if you have a lot of debt chances are you will only be able to get your loan at a very high-interest rate. Now you have a new problem and that you end up paying a high-interest rate on a high balance loan. This gets extremely expensive over the long run.

Some consolidate their debts by using their credit cards to get cash advances against said credit card in order to use the money to pay off other credit cards. Confused? You’re not the only one. Typically, this course of action is a bad idea because cash advances often charge extremely high-interest rates. Sometimes they are up to triple the amount of that credit card’s normal interest rate!

Filing a Chapter 13 Bankruptcy is another way to consolidate your debt—sort of.  Chapter 13 is actually a reorganization of your debt that helps you pay your debts in a more manageable way. Technically speaking a Chapter 13 is actually consolidation because if you owe one credit card $200 and another credit card $5,000, then really you still owe two completely separate debts. Similar to a debt consolidation, however, you would make one single payment a month to one place and that’s it in Chapter 13. Further, there are a few added bonuses in Chapter 13 not available in a true consolidation in that most interest rates are reduced if not completely eliminated.   Further still, you may receive a discharge (forgiveness) of your debts without making any payments towards some of them if you qualify.  Just like a debt consolidation, you no longer have so many debts to juggle.

If you have too many debts to juggle and would like to pay them back in a more manageable way, contact RS Law today for a free consultation.