Why is Debt Consolidation Not an Optimal Strategy for Debt?
A Typical Debt Consolidation Strategy
Mike owes MasterCharge $3,000 at 29% interest. He also owes Gracy's Department Store $5,000 at 30% interest and Big Box Electronics $10,000 at 18% interest. Mike shops around and finds a debt consolidation company that will put him into an $18,000 consolidation loan at 20% interest. Although he is increasing the interest rate on his largest debt by 2%, this is largely offset by the savings on his MasterCharge and Gracy's debts. However, Mike may be better served by a bankruptcy - it all depends on what he purchased from Big Box Electronics.
If the items are no longer worth much money, a Chapter 7 trustee may not attempt to liquidate what Mike cannot exempt. Other factors come into play as well. When did Mike purchase the goods at Big Box Electronics? If the purchases were relatively recent, his behavior may appear to be an abuse of the bankruptcy code if he files. This is why it is highly important to evaluate your financial situation before rushing to file a bankruptcy - there may be actions you have taken that must be remedied before you can successfully file for bankruptcy. Those who make full disclosure of their financial affairs rarely need to worry about abuse.
If you are in a similar situation and could use some help, contact us today online or by telephone at (312) 313-1613 to speak with an experienced Chicago bankruptcy attorney.