Should You Consider Restructuring Your Debt?

Sometimes shedding debt is like trying to lose weight — you just keep gaining. Try telling Jillian Michaels that you prefer shortcuts to weight loss and prepare for the verbal beating of a lifetime. When debt is an overwhelming burden, debt restructuring can adjust your payment plan to create lower rates, lower payments and a longer payback schedule. Sound good? Of course it does. But beneath the surface, debt restructuring is similar to weight loss surgery: always expensive, and without discipline, a step deeper into the mess.

Restructuring Options

Balance transfers: Moving credit card debt to a lower-interest card offers interest-rate relief and is something to look into even if you’re not up to your eyeballs in debt. But use caution: “No interest for 12 months” may sound appealing, but once the low-interest period expires, rates can jump dramatically. Frequently opening new cards to transfer the balance can hurt your credit score. Plus, you may pay fees for each transfer. It’s best to find a good rate and stick to it. Don’t run from one “no interest” card to the next.

Consolidation: Consolidation loans combine multiple debts into a single loan that is simpler to manage. It essentially replaces old debt with new debt, so only consider consolidation if you’re certain the cost will be less than what you currently pay.

Borrowing against equity: A home equity line of credit (also called a HELOC) can provide the money needed to pay off demanding creditors. Borrowing against a home is risky — you could lose the house if you default on the loan. A second job might keep you from wasting precious equity.

Settlement: When you owe more than you can possibly pay, try settling a portion of the debt with creditors. Some debt settlement companies have come under federal investigation for fraud, abuse, and deception, so if settlement is the only option, know that you can usually negotiate directly with a creditor. Get help from a nonprofit credit counselor at

While restructuring debt may ease the burden, remember that there’s no quick fix to shedding major debt.

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