Most people carry multiple credit cards. And many of those people also carry multiple credit card debts. There are plenty of other places to go into debt as well. Medical bills are often a source, businesses can sap up income, and it can get overwhelming way faster than you might expect.
In order to take control of the money owed, debt consolidation is often an option. But it’s not always the best answer to the problem at hand. Instead, declaring bankruptcy might be the way to go.
Which is best for your situation? How can you choose between the two?
Use some of these tips to help figure out what’s in your best interest.
What Is Debt Consolidation?
You need to understand what debt consolidation and bankruptcy are first in order to choose between the two. Debt consolidation is a method that takes all of your qualifying debts and rolls them into one loan. Essentially, you have one loan for the amount of everything you owe. You pay off all of the debts and are left with just one loan to pay. You generally have a lower interest rate and a lower monthly payment. You can actually see the debt going down and it can help your credit to rise as well.
Benefits of Debt Consolidation
As mentioned above, with debt consolidation, you have a single lower monthly payment. You have a lower interest rate as well. Your debt becomes manageable and you are able to see it go down on a regular basis. You can also improve your credit score overall as time goes by.
Downsides to Debt Consolidation
You still have a payment to make when you consolidate debts and you can still put other things at risk, like perhaps your home, if you don’t make those payments on a regular basis. You are also still considered in debt when you
What Is Bankruptcy?
Bankruptcy forces you to sell all of your assets, except for those that are exempt under the law, to pay as much of the debt as you can. After that is done, you conclude that you simple cannot pay back the debt, even at a lower interest rate. Your debts will then be discharged.
Benefits of Bankruptcy
You get a fresh start without certain types of debt to your name that you have to struggle with as you start anew. While the process can take up to half a year to complete, once it is done, you can start a new life debt free.
Downsides to Bankruptcy
While being essentially debt free sounds great and you can walk away from your past debt, it can severely damage your credit score and it can be very hard to get a loan from any creditor for years into the future. It can be hard to get what you need to move forward and it’s something that will show up on your record for a long time into the future.
Which Is Right for You?
Now that you know more about debt consolidation and bankruptcy, you will have to choose between the two if you need debt relief. First, look at how much debt you have. Is it something you can even feasibly pay off? If so, then you can consolidate the debts, get the only monthly payment, and move forward. If you know you aren’t going to be able to pay the debt off, even if you have just one loan, then bankruptcy might be the only option.
Before you make a decision about bankruptcy or debt consolidation one way or the other, speak with financial professionals and see what options are available to you. Getting expert advice can help you to make the right moves for your financial future. You want to ensure that you are heading in the best possible direction.
