Are you looking for the best options for debt consolidation in Los Angeles? Read on, as we discuss what consolidation means as well as your other debt relief options that others may not have told you about.
When you’re struggling with debt, it seems that conventional wisdom suggests that you obtain a loan to roll all of your smaller loans into one. In some cases, this may help you to obtain a smaller monthly payment. Saving money can be helpful to your budget, but consider this. You are adding “interest to interest” by seeking a loan to pay off your loans. There are some situations where consumers in Los Angeles may realize a benefit, but this is mostly short-term in nature. In the long run, your term must be longer to obtain lower payments thus your will be paying back much more interest – draining your financial future and stealing from your ability to earn interest on your savings. If you find yourself in this situation, please consider that additional options exist outside of traditional debt consolidation loans.
Alternatives to Debt Consolidation in Los Angeles California
Debt relief options may have changed since you last conducted research in the marketplace. In fact, traditional advice only covers some of the options that most LA consumers have available to them today. Let’s touch on some of these below in the form of “myths.”
Myth #1: Filing for Bankruptcy is the Best Option Outside of Consolidation Loans
Did you know that may of the people who are counseled to file either Chapter 7 or 13 don’t truly need to? With the promise of a clean slate, bankruptcy carries with it emotional and financial scar tissue that most Los Angeles consumers can do without. How does this relate to debt consolidation? Lacking strategic guidance, many consumers fail to qualify for the Chapter 7 bankruptcy they sought and instead are forced into a Chapter 13. This is a glorified re-payment plan, yet there is no glory involved because you’re marked with a bankruptcy in the process. If making a monthly payment with the confidence that your debts will all get resolved is your goal, then read on to the end. We’ll explain an alternative option you may want to consider.
Myth #2: Consumer Credit Counseling is Best Because it is “Non-Profit”
The truth is that all debt relief options have their place in the right circumstances, but people seeking debt consolidation in Los Angeles are often told to pursue a “non-profit” option if they don’t qualify for a consolidation loan. So how does this work?
Essentially, a debt management plan (DMP) is often considered “bankruptcy light” because your enrollment into it is displayed on your credit report. During this time, which can last several months or years, you make a consolidated payment to a company that distributes smaller payments to your creditors. Creditors often agree to a reduced interest rate, which can be helpful when it comes to making headway on your debt loads. You then make a monthly administrative payment to the facilitator. In the end, you will end up paying back a large portion of the interest you have accumulated prior to entering the debt management program. In addition, you will still pay interest along the way and until completion. You can see why consumers in Los Angeles may not see this as the best debt consolidation option that is available to them. Additionally, other criticism exist about these programs which can be found, here.
Myth #3: Home Equity Loans Provide Tax Benefits, so they are “Good.”
If you are fortunate enough to have equity available in your home’s market value, you may have been approached to take a loan against it to “payoff” your unsecured debts. It can be a good feeling to think of each credit card going to a zero balance, but before you do consider this. Your debts aren’t going away, they are just relocating. Is your home’s value the best place for your credit card debt to hide?
In addition to paying more interest-on-interest as we discussed, your mortgage is amortized differently than a car loan. You will end up paying up to three times the amount over the long haul when you calculate the amount of interest that makes up each payment. While this interest is tax deductible for many Los Angeles homeowners, is this really “savings?” Most realize it’s not, and when they calculate the amount their debt consolidation will amount to once fully paid it may not seem like such a good idea. As Ron Berger has said, “If you use a home equity loan, line of credit or cash-out refinance to consolidate your debts, recognize you are guaranteeing the loan with the pink slip to your home. It may seem like a good idea—especially with today’s incredibly low interest rates, but you’re going from unsecured debt to debt that’s secured by your most important asset: your home.”
What is the Option for Debt Consolidation in Los Angeles CA?
As you can see, not all debt consolidation options are created equally, nor are they beneficial. A better option that many LA consumers are exploring is the opposite of consolidation, and it’s called debt reduction. This works by reducing your debts through the process of negotiation, and instead of adding more interest to your debts you will often realize savings instead. If you would like to learn more about our debt settlement process, you can read more here.