Are you overburdened with several debts? Do you want to know whether bankruptcy or debt consolidation can help you to get out of debt? Debt consolidation is regarded as a better option over bankruptcy. Go through this article to find out why it is so.
Debt Consolidation - Pros and cons
In debt consolidation, you can consolidate all your multiple debts into one. Moreover, the interest rates on your debts get reduced. You may go for a debt consolidation program wherein you can repay your debts with the help of a consolidation company. You can also take out a debt consolidation loan (similar to a personal loan) and repay all your outstanding debts.
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The pros and cons of debt consolidation are given below.
Pros:
1.Your monthly interest rates get reduced.
2.No need to manage your multiple debts.
3.You can pay off your debts with the help of a single monthly payment.
4.You will not get any more harassing creditor/collection calls.
5.Your creditors can waive off or reduce your late fees and over-the-limit charges.
Cons:
1.It is quite easy to fall into another debt if you are not able to manage your credit cards properly.
2.You can lose your property if you are not able to repay your secured debt consolidation loan (by pledging a valuable property) on time.
3.You may end up paying more on your debts if you repay over a period of 10-30 years.
Bankruptcy - Pros and cons
Bankruptcy is a federal court procedure that helps you to reorganize or eliminate your existing debts. You can either sell your valuable assets or pay your debts through a repayment plan. Depending on your financial situation, you can file Chapter 13 or Chapter 7 bankruptcy.
Here are the pros and cons of filing bankruptcy.
Pros:
1.You can stop any legal action against you.
2.Creditors and collection agencies will stop harassing you.
3.Get the opportunity to make a fresh start.
4.You may save your personal property if you file Chapter 13 bankruptcy.
Cons:
1.Your credit score may get reduced by 200-250 points.
2.It will stay in your credit report for 7-10 years.
3.You may get credit denials for about 2 years.
4.You will not be able to file bankruptcy for some years.
5.You need to pay filing and attorney fees.
6.You will lose your nonexempt property if your file Chapter 7 bankruptcy.
7.You may not get discharge from all debts (such as, student loans)
If you consider the above pros and cons carefully, then it will be much easier for you to decide "Bankruptcy or debt consolidation - Which is a better option to repay your debts?" After a careful consideration, it can be commented that consolidation is a much better way to pay off your debts as it has a positive impact on your credit report. Moreover, if you go for debt consolidation, you can apply for new credit as soon as you repay all your debts; in comparison, you will have to wait for minimum 2 years in order to get new credit if you have filed bankruptcy. However, it is advisable that you seek help of a financial advisor, who can analyze your financial condition and suggest which option is best for you.
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