Debt is not a new issue on the American conscience and it continues to affect more people every single day. When you combine the poor economic climate with the constant rise of the cost of living, it’s no surprise that things are spiraling further out of control. More people are being buried alive under a mountain of debt that seems endless and they have no viable options for paying down what they owe. Although it might seem easier to hide out from the debt collection calls, you’re not doing yourself any favors by ignoring the reality of your situation. You’ll be much better off trying to have your debt consolidated and it can be done. Choosing debt consolidation over bankruptcy might be one of the best ways to get your finances under control so you can breathe a little easier again. If you’ve been wondering about why you should spring for debt consolidation over bankruptcy, it’s time for you to get the facts.
Key Points of Bankruptcy
Some people might think that bankruptcy is the only way to be “free” of those overwhelming debts and they don’t even consider the possibility of debt consolidation. Declaring bankruptcy is the most common method but it’s bound to be harmful to your financial state for many years to come. When you compare the two, it seems that bankruptcy has more downsides than debt consolidation and for that reason, debt consolidation over bankruptcy is a serious thing to consider.
- If you file for Chapter 7 bankruptcy, you have to liquidate any assets or properties that you’re not expressly entitled to retain because they are not protected by state law. These assets and properties are then used to pay off your creditors.
- You can expect your credit rating to be troubled for quite a few years to come. If you might need to apply for a loan in the future, you can be sure that your chances of approval are diminished since bankruptcy damages your credit so severely. You can have a bad credit rating for as long as an entire decade.
- Bankruptcy must be filed for through the federal court system. You’re essential given federal protection when you decide to go through with bankruptcy and thus, you must petition the federal court to be granted such protection. You’ll most likely also have to hire a bankruptcy attorney that could cost you quite a bit.
- If you have retirement savings, they’re not automatically “off limits” when you file for bankruptcy. You are allowed to keep your 401k account intact and you’re also able to keep up to one million dollars in an IRA account if you have one, but everything else can be seized to cover your accumulated debts.
Is Debt Consolidation Better?
It’s true that bankruptcy is a legitimate option to take to cover your debts, but it should be utilized as a last resort whenever possible. There are costs associated with both bankruptcy and debt consolidation, so you want to weigh all expenses before choosing to go with one option or the other. If the majority of your debts are from credit cards, debt consolidation over bankruptcy is probably the better way for you to go. Debt consolidation has less of an impact on your credit report and you also get in the habit of being more responsible with your finances once you begin making payments. Only when you have very sizable debts like repossessions or foreclosures should you really consider bankruptcy, because it stops creditors from claiming rights to your assets as payment.
Make the Right Choice
You might want to go with debt consolidation over bankruptcy because of the control you’re allowed to have over your own personal finances. Debt consolidation is the act of compiling all of your debts and making them into one single loan. That loan is used to pay your monthly bills while the debt consolidation company works to get you lower interest rates from your creditors. When you choose debt consolidation over bankruptcy, you get a few different benefits.
- Picking debt consolidation over bankruptcy allows you to lower your monthly payments so that you can meet those payments every month without worry. Using a single loan to pay down multiple debts at a time makes it so that you can stay grounded enough to continue bettering your financial state. It also makes it easier since you don’t have to worry about paying multiple bills all at different times.
- More of your earnings will go into paying down your debt instead of trying to cover interest charges. Securing lower interest rates will ensure that you get your debts down in a more timely fashion.
Bankruptcy will without a doubt affect your credit negatively while debt consolidation could only help better your situation as long as you’re committed to staying on track with it. Debt consolidation will also help you stay on track with bill payments and this will make it easier to get better interest rates on loans you might want to apply for in the future.