Can Debt Restructuring Help Ease Financial Stress? Maybe, but Beware the Pitfalls

Has your credit card debt spiraled out of control? Are you juggling payments to a long string of creditors, feeling like you’re never making a dent in the amount of debt you owe? Even worse, is this debt growing each month because of high interest rates?

Faced with this stress, you might be considering a debt-management strategy known as debt restructuring. It’s a form of debt management that’s not as well-known as debt consolidation, but one that might be an option for consumers whose debt has gotten so bad that they’re considering filing for bankruptcy.

But while debt restructuring might help you gain control over your debt, it could also leave you with a new loan that comes with a sky-high interest rate. You might end up paying far more than what you originally owed when you pay back this new loan.

What Is Debt Restructuring?

American Consumer Credit Counseling, an Auburndale, Massachusetts-based non-profit, says that in a debt-restructuring arrangement, people who are struggling with credit card or other debt take out a new loan, using that loan to pay off what they owe their creditors. They then must repay their new loan – with interest, of course – by making regular monthly payments.

In an ideal world, the terms of the new loan will result in a lower monthly payment that these consumers can afford. Even better, the new loan should leave consumers with a lower number of monthly payments while reducing the amount of overall interest that they pay.