Guiding You Toward A Brighter Financial Future

Is Combining Your Debt A Wise Strategy?

In some situations such as when there is a solid plan and, eventually, sufficient funds, consolidating debt can make sense.

Debt is a real problem for many people in Tennessee, especially as medical bills and student loans mount. Bankruptcy can help, but many people see it as something shameful, as a very last resort. Instead, they may consider avenues such as combining all of their debt. This strategy does have advantages but is not always wise.

When combining could be wise

Combining debt can make sense if it is not simply delaying the day of reckoning. For example, suppose that Susan rolls over all of her credit card debt onto one no-interest card (for one year, she need not worry about paying interest). She has just received a big pay raise at work, and in the next year, it will be enough to pay off a good sum of her debts. Or maybe one of her relatives has just died, and after his estate goes through probate, Susan stands to receive a substantial inheritance. In these situations, plans exist for paying off the debt.

Combining debt can also be a smart move when the new interest rate means that the total monthly payment is lower. Otherwise, someone could be sacrificing the convenience of one monthly payment for that one payment to be higher than the total, of, say, 10 payments used to be.

When combining might be unwise

Sometimes, combining debt means taking out a loan that has a balance transfer fee or another type of fee. These fees can really add up.

Also, combining simply might not be feasible if there really is no way for the debt to eventually be paid off. If Ben is living paycheck to paycheck and there is no foreseeable change in his circumstances, all combining does is stall his day of reckoning by perhaps a few months.

What could work instead

Filing for bankruptcy is an option that might work in some cases instead of combining debt. For one thing, it can stop creditor harassment, a major source of stress. In many situations, people can also keep their house and car. They gain the opportunity to either start their financial life anew with some exceptions such as most student loan debt (Chapter 7) or to repay a good portion of their debts (Chapter 13).

Now suppose they had decided to consolidate debt instead with no plan in mind. In the months after consolidation, they might be no better off than they were before. If the debt is on a new credit card, they might even be worse off once the introductory offer expires. Meanwhile, if they had filed instead of consolidating, they would have more money.

The question of whether it is a good idea to consolidate debt in Tennessee varies depending on individual situations. If someone is contemplating this move, it can also be a good idea to speak with an attorney about the possibility of filing for bankruptcy.