Credit Card Consolidation Versus Bankruptcy

Getting out of a financial bind with credit cards is a tricky business. Do you consolidate the balances into one, or should you clear them through bankruptcy? There is no one easy answer as it depends on the individual's situation for the final choice. But it never hurts to be educated about the pros and cons of each option before making the decision.

Credit Card Consolidation Pros and Cons

Many people have successfully cleared their debts through consolidation. This means it can work, and work well. Some of the advantages are:

• Lower monthly payments. Instead of stretching to meet all of the bills, they are now under one umbrella.
• The debt will be retired at a specific date. No more having to deal with a variable APR, making it difficult to pay down a balance.
• More money in your pocket. The lower payments puts more cash in your pocket for you to utilize for other things.

However, consolidation is not without its risks. Make sure to do the homework on the company before signing on. Not all credit counseling and consolidation services are on the up and up. There are also pitfalls which can ruin your credit.

• The overall interest and fees may cost more over time.
• Slow payments can trigger a lawsuit by the credit card company. Even if the counseling service negotiated the lower payments on your behalf, the card company is under no agreement to honor it.
• A possibility of inaction by your counselor exists. The counselor may not work aggressively towards settling your debt, making things worse.

Bankruptcy Pros and Cons

Filing for bankruptcy is an option many try to avoid. There is still a negative social stigma attached to it, despite the fact that it is a legal option to eliminate debt. However, there are positive aspects of bankruptcy to consider:

• Complete elimination of debt, regardless if it is chapter 7 or 13.
• Creditors can no longer harass you during the time the case is open, and never again after discharge.
• Provides a financial fresh start. It gives a blank slate for the consumer to start rebuilding their credit from.

Bankruptcy should not be entered into lightly, as it does have its drawbacks. They are mostly inconvenient as opposed to a roadblock, but exist nonetheless:

• Bankruptcy stays on a credit report for up to 10 years.
• Finding a creditor that will overlook the bankruptcy is difficult at best.
• You will have to wait at least two years before being able to obtain a mortgage.

Talk with a Lawyer About Your Options

The best thing you can do for yourself is to talk to a lawyer about your options. Sometimes it does make more sense to consolidate rather than file for bankruptcy. A lawyer who is familiar with your financial picture can help you make the decision that is right for your situation.