San Jose, California, is one of the most thriving cities in the world. As the capital of Silicon Valley, it has a long history of creating and hosting some of the best known tech companies. Today, the city counts such firms as eBay, PayPal, Adobe Systems and Lockheed Martin, among many others, as the driving force behind its incredible economic engine.
San Jose often ranks number one in the entire country for both median household income and disposable income, making it one of the richest cities in the United States and the world at large. However, membership in such rarefied economic circles comes with a hefty price tag. Despite its low unemployment rate of just 5.3%, San Jose often ranks as one of the most expensive cities in which to live. Add to that the incredible wealth gaps seen throughout the state of California, and you’re bound to find a lot more to the economic story than a bunch of impressive GDP graphs and unemployment numbers will tell.
For those living in San Jose who don’t have advanced degrees, life can be a lot tougher than all the upbeat economic data would lead us to believe. Often times, the extremely high costs of living leads people to fall into debt. It’s all too easy and all too common for well-intentioned individuals or households to accumulate levels of debt that quickly snowball into unmanageable and even dangerous amounts. In fact, California has the highest number of bankruptcy cases each year of any state, by a very wide margin.
Who can benefit from debt consolidation?
Many financial experts contend that debt consolidation is not a good route to follow, even in cases where it can demonstrably save the debtor money. They argue that the real problem is not the debt but the underlying spending habits that led to it. While there is a case to be made for that viewpoint, some people may benefit enormously from debt consolidation.
It is important to note that debt consolidation is primarily a tool used to reduce payments on unsecured debt. Secured debts, such as mortgages or car loans, typically cannot be consolidated. Government debts with special legal status, such as back taxes, student loans, alimony or child support also cannot typically be consolidated and may even result in serious criminal charges for non-payment. Any company offering to consolidate such debts should be approached with extreme caution.
But for those with unsecured debts, such as those acquired by use of a typical credit card, debt consolidation can have considerable benefits. Those who will most likely benefit are people who have sufficient income to continue making payments and who are also able to address and correct the underlying cause that lead to the debt being acquired in the first place. For these people, debt consolidation can make considerable sense. Someone with $100,000 in outstanding unsecured loans from five different creditors may be able to drastically reduce the principal amount owed as well as the interest rates. This can result in tens of thousands of dollars in total savings, well worth the effort!
However, it’s very important to realize that, if those two conditions are not met, debt consolidation may be a major mistake. Generally speaking, Chapter 7 bankruptcy should be avoided at all costs. But for some people, it may be the only option. Consolidating debts before you go into Chapter 7 can be a costly error because it can give creditors access to assets that would have otherwise been exempt under the bankruptcy proceedings. For example, in many cases under California law, when a person enters Chapter 7 bankruptcy they are entitled to retain the equity in and ownership of their primary residence. However, if they had first consolidated debt using a home equity line of credit, that creditor would still have legitimate claim against the equity in their home, even after emerging from Chapter 7.
That said, most debtors will still have sufficient income to pay off their creditors. They should also be able to figure out a game plan by which they can avoid falling into the same bad habits that originally led to their debts. For these people, debt consolidation can be the fastest way to get out of debt with their credit rating and lifestyles still intact.