Banks Pushing Debt Consolidation, But Chicago Bankruptcy May Be Better Solution

Personal loans all but disappeared during the recession, but it looks like they're making a comeback.

The Wall Street Journal reports that lenders like Wells Fargo and Discover Financial Services are signing Chicago consumers up for personal unsecured loans to cover expenses like home repair projects, weddings, and paying down debt.

Bank customers received 425 million mail offers for personal loans in 2011 - that's up from just 290 million sent in 2010. Banks know that with falling housing prices and tighter credit, fewer consumers will seek - or qualify for - home equity loans. But they can make money off consumers with smaller loans.

With income stagnant and costs rising, many consumers have been relying on credit cards to make large purchases - or even to pay basic bills - in recent years.

For some, personal loans offer a way to pay down credit card debt and regain control over finances. For others, Chicago bankruptcy may be a more realistic solution.

On one hand, personal loans tend to come with lower interest rates than credit cards. While many credit cards charge upwards of 25 percent, most borrowers will pay 9 to 15 percent on a personal loan.

That difference in interest could make the loan worth it - if consumers stop putting charges on their credit cards.

Unfortunately, Chicago bankruptcy lawyers have seen many people continue to add to credit after securing a loan that is supposed to pay down debt. For folks used to relying on credit as a supplemental income source, it can be difficult to suddenly stop spending beyond their means.

As a result, many borrowers end up with yet another monthly payment on top of a burden of debt.

Every financial situation - just like every consumer - is different. If consolidating debt allows you to pay your balance off faster and more easily than making credit card payments, it's something to consider. But for most consumers, debt problems run deeper than the credit card balance itself.

Consolidating debt just shifts it around. Filing for bankruptcy has the ability to attack the core of your debt troubles by eliminating unsecured debts.