Author: Robin Williams

New laws have been passed on debt consolidation that makes it a much viable option to pay off your debts as compared to bankruptcy. According to the new laws, debt settlement and debt consolidation companies cannot charge upfront fees from the customers coming to them for help.

How debt consolidation companies work?

There are debt relief and credit counseling companies that offer you debt settlement and debt consolidation. When you go to them for debt help, they first offer you a free consultation. They analyze your financial situation and helps you in preparing a budget so that you can start saving. They then negotiate with your creditors so as to reduce the interest rates on your debt. All off your debts are consolidated into a new single debt and you are required to make the monthly payment to the debt consolidation agency. This payment is then forwarded to your creditors. However, even if the consultation comes for free, the other services are not for free. You are required to pay the consolidation company a fee for their services. Now, many consolidation companies charge the customer an upfront fee. That is they charge money even before actually helping you in your problem. Acc0ording to the new law, the consolidation companies cannot do this. They cannot charge you till they have successfully settled or consolidated your debts with your creditors (whichever applicable).

Why is debt consolidation better from bankruptcy?

According to the new laws, consolidation companies can’t charge you before helping you in your problem. The company representative will have to settle atleast one of your debt or negotiate a lower interest rate in debt consolidation in order to be eligible to charge a fee. Thus, you won’t have to pay any kind of fee in their inability to help you in your problem. However, in bankruptcy, you are required to pay the court some amount of money if you have filed bankruptcy. You will also have to pay fees to your attorney if you have taken help from an attorney to file the bankruptcy. Moreover, there’s no guarantee that your bankruptcy filing will not get discharged. Also, in bankruptcy (depending on the chapter) you may lose your assets as the bankruptcy trustee will sell off your assets to pay your creditors. But if you consolidate your debts, you won’t lose your assets. Other than this bankruptcy hurts your credit score. It lowers your score by 200-350 points but consolidation helps you in improving your credit.