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Bankruptcy vs. personal loan to refinance credit cards

Consumers nationwide, including in Ohio, can be the victims of life's unanticipated twists and turns. Job losses, car accidents or other unexpected occurrences can ruin any consumer's budget in the blink of an eye. In many cases, consumers have no emergency funds, and the only answer is to use credit cards. This sets a debt spiral in motion as unpaid credit card debt is difficult to overcome, and bankruptcy may be the only solution.

However, other options can be explored -- one of which is refinancing of credit card debt. This alternative may bring debt relief under certain circumstances. If a consumer juggles the payments of multiple credit cards with varying interest rates, taking out a personal loan with a lower interest rate may be an appropriate choice. If a consumer can pay off the existing credit card debt within one year, a loan may not be the most suitable option because it will keep the person paying for three to five years.

The repayment periods for most personal loans are between 36 and 60 months, and the consumer must settle the full outstanding amount in that time. Considering the pros and cons of this option, compared to those of Chapter 13 bankruptcy protection, may be informative. People are often discouraged from filing for bankruptcy because it hurts credit scores and stays on the individual's credit record for an extended period. In reality, Chapter 13 also offers the opportunity to extend payment over three to five years. In addition, if the consumer does not default on the court approved payment schedule, any outstanding balances on unsecured debt may be discharged at the end of the payment term.

During the repayment period of a personal loan, the consumer has no protection against harassment by debt collectors or other creditor actions. In contrast, the Bankruptcy Code puts an immediate stop to such action upon a bankruptcy filing. Before signing for a personal loan to refinance credit cards, it makes good sense to consult with an experienced Ohio bankruptcy attorney to gain the necessary information to allow informed decisions that may affect future financial stability.

Source: wtvm.com, "7 things to know about refinancing credit card debt", Andrew Housser, Accessed on Dec. 2, 2016

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