Debt Consolidation vs Bankruptcy

Understand Your Options - Part 1





This is the first in a series of debt consolidation vs bankruptcy. When we compare them with each other we can see that, each have their own pros and cons, though at face value debt consolidation may seem like a better choice.

These are two options which most people consider when they face a financial difficulty. Their ultimate aim is to be free of debts, but most people are not sure as to which process to choose to be free of their debts. So have a look at debt consolidation vs bankruptcy before making your choice.





Debt Consolidation:  It basically means that you sum up all your debts into a single debt and work off in paying that one debt through monthly payments.  This can be done in two different ways:

  1. One method is that you can apply for a debt consolidation loan and pay off all your creditors, and then make monthly payment to repay that loan. 
  2. Another method is let your debt consolidation company to negotiate with your creditors and accept on an amount that can be paid on a monthly basis for a specified number of years.

Advantages:

  1. In debt consolidation vs bankruptcy the main advantage of debt consolidation  is that your credit does not get affected much and also it is rather easy to build your credit once you are discharged.
  2. You just have to sign a single check a month and there is no trouble of any paper work involved, as the debt consolidation company takes care of it.
  3. The interest rates for your debts will be considerably lowered and also any late charges can be cancelled. 
  4. Companies and programs in this arena are usually very confidential, so no details are given to your employer, though it appears on your credit report.


Disadvantages:

  1. In the pitting of debt consolidation vs bankruptcy the following two are the most disadvantageous for debt consolidation. 
  2. This is similar to a mortgage and has to be paid on a monthly basis. So if you lose your source of income you might have to apply for a bankruptcy.
  3. Though you have applied to have your obligations pooled together and are paying your accounts, some impatient creditors can still sue you for nonpayment.
  4. You may want to check into credit repair after you get things settled.


Other cons include:

  1. Does not apply to any secured loans.
  2. The consolidating loan is usually a secured loan obtained by placing your properties as collateral. So it places your property at risk.
  3. In some cases, though the payment is lowered with time you might still have to pay the more amounts in interest in the same period.





Go To Part 2 Bankruptcy vs Debt Consolidation

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