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When debt consolidation is not enough

Some Massachusetts consumers may be interested in debt consolidation as a solution to financial problems. While this can be helpful, if the person's underlying problem is overspending, debt consolidation might not be the answer.

One man, determined to avoid filing a second bankruptcy, took out a $17,000 loan from his credit union to pay off 10 credit cards. This lowered his interest rate to 8 percent and gave him a lower monthly payment of $375. However, the man began helping his daughter, a single mother, and took out a payday loan to do so. When she lost her job, the $5,000 tax refund she hoped to use to pay him back had to go to take care of her children.

However, the man said the majority of his problems were still not because of these issues but due to irresponsible spending. He said he simply bought clothes, movie tickets and bigger ticket items like a computer or a TV whenever he wanted them. When his debt to both the credit union and the payday loan company became overwhelming, he filed for Chapter 13 bankruptcy. This allowed him to reorganize his debt and pay it back over a five-year period. The strictures associated with the bankruptcy filing forced him to become more disciplined in his spending habits.

Whether a person's inability to budget or unexpected life events, such as job loss or illness, have led to debt, bankruptcy may be one option. Since filing for bankruptcy puts at least a temporary stop to creditor action against the debtor, it may be possible to halt repossession and foreclosure. An attorney can provide more information on this topic.

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