Bankruptcy vs. Debt Consolidation

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Comparing Bankruptcy vs. Consolidating Debt

Joseph Lederman

Being in debt is almost like being trapped in a cave with no way out. It can be an incredibly challenging and emotionally demanding experience to escape from. Staying on top of numerous loans can be very difficult and can often lead to bankruptcy. If you are struggling to pay off your debt, you can declare bankruptcy and become liberated from paying off your debts altogether. However, declaring bankruptcy will remain on your credit score for almost ten years and it is that fact alone that can lead people to consolidate their debt instead of declaring chapter 11.

One method of dodging bankruptcy is to acquire a debt consolidation loan. Debt consolidation will assist you in getting a firm grip on your debt. It combines all of your debts into a single loan. A smaller interest rate can allow you to pay a smaller monthly payment. Consolidation loans can be secured or unsecured; however, an unsecured loan has a high interest rate so be careful.

Different Consolidation Methods

A home equity consolidation loan can be obtained when you put your home as collateral towards a loan. This is a secured loan and can allow you to obtain a lower rate of interest, as well as attractive payment conditions and lower monthly payments. Another kind of loan is referred to as a personal debt consolidation loan, which may be secured or unsecured. Another alternative is to reassign your total credit card balance to a different card which offers a lower rate of interest.

You have two basic choices to consolidate your debt. Deciding what method will meet your individual needs will have to do with whether or not you can qualify for low mortgage rates with debt consolidation loans. The total amount of debt you need to consolidate will also play a role in the interest rate you receive.

Borrowing for debt consolidation from a responsible and professional firm can greatly eliminate monthly debt payments; collections will be eliminated and can improve your credit rating. As specified before, if you use collateral such as your home for an equity loan, you are at risk of losing your house if you do not make your monthly payments on time.

Bankruptcy or Debt consolidation

Credit counseling or debt consolidation is a repayment plan which is structured and negotiated on your behalf by professionals. It can allow creditors to recoup the amount they are owed. Liability in the legal sense can remain and that allows you to control how your credit standing will be affected.

There are two varied concepts of bankruptcy. There are chapter 13 and chapter 7 bankruptcy. Chapter 13 gives the person the option to retain their property which they may otherwise lose such as their automobile or home. The debtor can pay off the debts over a three to five year plan instead of losing their collateral. Chapter 7 bankruptcy includes the liquidation of all individual assets except items which are under the state laws. Chapter 7 can be instituted by an individual every six years.  Often the only way to avoid repossessions and foreclosures, bankruptcy does not clean up negative credit records and can even make it worse. It does not allow people to get out of paying fees such as alimony, child support, court fines and taxes.

These methods aren’t meant to be taken lightly. You should research and study all financial methods of working through financial crises prior to make a final decision. Try meeting with professionals to get expert advice and distinguish between the different ways of consolidating debt or declaring bankruptcy. Every case is different than the next one and each may call for different systemic conclusions.