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Debt consolidation loans can actually make your debt issues worse

People dealing with overwhelming or unsustainable levels of personal debt are often eager to find a solution that can help them pay off what they owe quickly. Companies know there is a demand for debt relief, and they are always ready and willing to make a profit off of people struggling financially.

Some people find themselves falling victim to payday loan schemes, where short-term lenders offer them cash advances for an exorbitant interest rate. Many individuals who start using these services find themselves trapped and forced to continue to take out new advances just to repay the company they borrowed from. Other than the predatory fees associated with payday loans, their big issue is that they only help people meet certain financial demands without helping them address their debt.

Some people might view debt consolidation programs as a workable solution to their personal debt problem, but debt consolidation can leave you in a worse position. After all, debt consolidation usually involves taking out a loan that allows you to pay off your outstanding lines of credit or debts. Unfortunately, much like short-term paycheck advances, debt consolidation loans often don't really solve the underlying problem.

If your expenses exceed your income, you will just increase your debt

Many people wind up in debt simply because their monthly expenses are higher than their monthly income. While a payday loan can relieve the pressure of paying multiple creditors at high rates of interest, it won't resolve the underlying issues with your budget or your income.

Many people who use a debt consolidation program eventually find themselves in even more difficult situations later on, as their other debts will eventually build back up again. The only circumstance in which a debt consolidation loan might help you is when you can completely avoid incurring any new debt after starting the debt consolidation process.

If you need to use your credit cards to pay for your utilities for groceries, you will likely soon find yourself struggling with even more debt than before.

Bankruptcy can help you get a fresh start

While most debt consolidation companies are eager to sell themselves as a solution to your debt issue, what they really want is to be able to collect as much money from other people as possible. Bankruptcy, on the other hand, does not allow for a profit incentive, in part because the process goes through federal courts instead of through private businesses.

More importantly, unlike debt consolidation, bankruptcy gets rid of your debt, helping you to secure a financial fresh start and avoid the mistakes or problems that led you into debt in the first place. By obtaining a discharge of your unsecured debts, including credit card debt and outstanding medical debt, you can drastically reduce your financial obligations every month, making your budget more manageable on your current income.

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