– Dan Freund, Eau Claire, Wisconsin bankruptcy attorney
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This page contains general information. Contact a WBG attorney for specific advice.
Folks with debt problems have a number of good solutions to consider. They also have a number of very bad “solutions” to avoid. Here are a few:
Debt settlement. Here’s the pitch: (1) Stop paying your creditors. (2) Send money to the debt settlement company each month. (3) After a while creditors will be begging to cut a deal. Here’s the reality: (1) Stop paying your creditors. (2) Send money to the debt settlement company each month. (3) After a while your creditors will sue you. The bottom line: Only one in ten debt settlement plans actually work. Whether you call it “debt settlement” or “debt management,” it’s a bad deal.
Payday loan. It sounds so sweet: just a few hundred dollars until your ship comes in. But wait a minute – what is the interest rate? Five hundred percent? Let’s see … on a $300 loan that’s $125 a month or $1,500 a year! Pretty soon that little cash flow issue you had becomes a big financial problem. This “cure” is worse than the disease.
Debt consolidation loan. The flip side of the payday loan is the debt consolidation loan. It makes sense to lower your interest rate if you can. But here’s the catch: What if you pay off those credit card balances with a lower interest rate loan and then, over time, you build those balances back up? This solution only works if you can keep away from new debt.
Home equity loan (HELOC). Can’t get a signature loan to consolidate your debt? How about cashing in on that home equity? All well and good, IF you can keep away from new debt. But if you can’t then you’ll not only end up in bankruptcy, you’ll also lose your home.
401k loan. You’ve worked hard and put away a bit for your retirement. Now you’ve hit a rough patch. That nest egg is looking mighty attractive. But you’ve got the same risk as with any debt consolidation loan: run your debt up again and you’ll still end up in bankruptcy. If you lose your job and can’t pay back the loan then you’ve got a 10% tax penalty and income taxes on top of that.
IRA withdrawal. An IRA withdrawal is like a 401k loan, only worse. Just to get the money you’ll have to pay that 10% penalty plus income taxes. And, since it isn’t a loan, you won’t see that money again when you retire.
Folks with money problems should try to avoid bankruptcy. But they should do it the right way. Consult with a debt relief attorney to find your best solution.
More bankruptcy questions? Check our our FAQ page.
This page contains general information. Contact a WBG attorney for specific advice.
Wisconsin Bankruptcy Guide is provided by law firms designated as Debt Relief Agencies by the federal government because we help people file for relief under the Bankruptcy Code. We also provide other types of debt relief options.
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