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Debt consolidation traps could lead to Chapter 7 bankruptcy

For Ohio consumers who are looking for debt relief options, loan or debt consolidation often seems like a good choice. The promises made by companies offering consolidation services are enticing, and include the ability to lower interest rates and monthly payments and allow consumers to make one easy payment each month. However, a great deal of caution should be employed before embarking on a debt consolidation plan. In some cases, repayment is not possible, leading consumers to eventually file for Chapter 7 bankruptcy after a long period of repayment efforts.

One inquiry into the effectiveness of debt consolidation suggests that as many as 70 percent of those who attempt debt consolidation are not able to repay their obligations. One reason is that consumers who condense their debt under one umbrella often move on to accumulate additional debt before the existing accounts are paid down. In order to truly benefit from debt consolidation, one must also change their spending and saving habits.

An additional factor is the high cost of many debt consolidation plans. Fees can come in the form of up-front payments, interest fees or monthly fees for using the debt consolidation service. When these fees begin to add up, it may be a better move to attempt to negotiate repayment options directly with one's creditors.

It is also possible to rack up high interest charges. This is especially true when the consolidation loan repayment period is lengthy. The total interest charges could create an additional financial burden, even in cases where the consolidation lowered the individual interest rates on existing debts.

When searching for options for debt relief, it is important to fully understand the benefits and risks associated with all available choices. In some cases, debt consolidation can offer a smooth path to debt relief for Ohio consumers. In other instances, filing for Chapter 7 bankruptcy is a faster and more assured method of eliminating excessive levels of debt. Each situation is unique, and requires careful consideration.

Source:, "4 Debt Consolidation Traps to Avoid," Robert Berger, April 12, 2013

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