Debt Consolidation Vs. Bankruptcy

Getting into financial difficulties, regardless of the cause, can set you on the path of looking for a cure. But which route to take? There's debt consolidation arrangements and there's bankruptcy for ways out. Take a look at both remedies closely before choosing one or the other.

The Pros and Cons

Each has their pros and cons. Debt consolidation is also a lot less complicated than a bankruptcy. And your credit rating is much less likely to suffer long term damage. Bankruptcy can affect your credit rating in a far more negative manner for much longer. But a chapter 13 gives you the ability to negotiate with your creditors and pay certain debts off over a period of five years. The payments help keep a decent credit rating. Whereas debt consolidation only gathers all of the debts together under one umbrella with a single payment to pay off for a predetermined number of years.

What You Need to Know About Debt Consolidation

Debt consolidation works best when combined with a low interest rate. It's not uncommon to see your payments lowered over time, but wind up paying more in interest over that same period. Do the long term math on each of your balances to figure out the interest with a payment of X amount of dollars over so many months or years. Then for comparison, combine all of the current balances into one sum and multiply that by the best interest rate offer you can find. If the debt consolidation number comes in lower, you're best off moving your balances into one payment. The downside to consolidation is that the amount will be there every month, just like a mortgage. It will not go away in the case of a loss of income and you may still wind up filing for bankruptcy.

Advantages of Bankruptcy

There's absolutely no contest when it comes to debt consolidation vs. bankruptcy. The idea of bankruptcy has, by and large, lost much of the stigma that's been attached to it. The act of filing puts the you, the debtor, into a much better negotiating position with your creditors. Or you can simply walk away from your debt in a no-asset chapter 7. It is true that a bankruptcy will stay on your credit rating for up to ten years but its overall impact has been lessening over time. You can get a car loan within a year of discharge which goes a long way towards rebuilding your credit.

Legal Assistance

An experienced lawyer can be of help with which method of debt reduction to use. You may think you can handle debt consolidation and wind up finding out later that you can't. Avoid any uncertainties from the beginning and consult with an attorney.