Debt and loan consolidation is the process of taking all or some of your debts and putting them all together. Lots of people use consolidation for various reasons and there are different ways to do it. During the home refinancing boom of the mid-2000s, many people rolled all their debt into their home loans. The idea was that they could take their high-interest debt and turn it into a loan with a much lower interest rate. However, the flaw that many did not realize was that they would pay off this newly consolidated debt over 30 years, no interest rate reduction would save them money during that 30 year period. Others have used specific consolidation loans to bundle all their debts into one easily traceable payment. Regardless of the form and nature, the basic premise behind consolidation is that by consolidating all your debts into one loan, you should be able to lower your interest rate and make it more “affordable” or “payable.”

In theory, debt consolidation seems like an attractive and viable solution to deal with debt. However, research and history have shown that consolidation rarely works, and my experience as a bankruptcy lawyer tells me that people don’t save money in the long run, but actually end up costing them more. You can learn more about why consolidation rarely works by reading 4 Consolidation Traps to Avoid, published by US News and World Report in April 2013.

Even finance gurus like Dave Ramsey admit that consolidation services don’t work and are nothing more than a “scam.” Read, The Truth About Debt Consolidation by Dave Ramsey.

Few reputable consolidation services exist, but many consolidation companies are nothing more than scams that prey on people with serious debt problems by preying on the fear that debt stress generates. Many of our former bankruptcy clients have tried consolidation companies and they all reported the same thing, it cost them a lot of money for the service but their debt balance did not change or did not change significantly.

Rather than waste your time, money, and sanity consolidating, Congress has given you another option to get out of debt. If you are in debt and have no foreseeable means of paying it off, you may still qualify for help.

When filing for relief under the Bankruptcy Code, individuals have a variety of options to get their financial lives back on track. Chapter 7 is a complete fresh start, by filing for Chapter 7 bankruptcy, you can eliminate almost any type of debt you may have and start your financial life from scratch. It’s life pressing the reset button.

Chapter 13 works like a structured payment plan, allowing you to pay off some debts over time and in an amount you can afford. Chapter 13 has many advantages that Chapter 7 does not, such as; stop interest and penalties on tax debt, save a home that is about to be foreclosed on, and in some cases, Chapter 13 allows you to eliminate negative equity from the car you own. This means that you pay what the car is worth and not what the loan balance is.

Additionally, many have reported that the time frame for getting your financial life back on track through bankruptcy is much faster than using unverified loan and debt consolidation.

Talk to a licensed bankruptcy lawyer wherever you live to learn about the benefits of dealing with your debt through bankruptcy.