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Personal loans increasingly used for debt consolidation

On Behalf of | Feb 6, 2019 | Chapter 13 Bankruptcy, Firm News

Paying off debt can be easier when bills are consolidated into a single, manageable monthly payment. Debt consolidation is nothing new, but it is certainly growing in popularity. Some people in Florida might even be using this method to avoid filing for bankruptcy, but there can be drawbacks to this method.

Debt consolidation is the most commonly-cited reason for personal loans, with 61 percent of loans used for this purpose. The concept is simple enough — a person who has several debts and monthly payments spread across accounts takes out a personal loan, pays off the existing debt and then focuses on repaying the loan through single monthly payments. These payments are often smaller and much more manageable, but at what cost?

The average amount of a personal loan for debt consolidation is $12,670. Personal loans typically have lower interest rates than the typical credit card, but even lower interest rates can quickly build when tacked on to large balances. The total outstanding balance for personal loans nationwide now stands at $125 billion while credit card debt recently hit upwards of $1 trillion. Rather than helping manage debt, it seems that various forms of consumer debt are continuing to rise.

Being in debt can be an emotional burden for the average person in Florida. As bills roll in throughout the month, there is often little if anything left over by the pay period’s end. While debt consolidation can be a smart approach for some people, others might benefit from bankruptcy, which can help them discharge debts and secure a better financial future for themselves.

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