Should I Consider Bankruptcy Or Debt Consolidation?
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Bankruptcy or debt consolidation—which path should I take? This is often the question that people overloaded with debts ask themselves. Financial problems can be caused by any debilitating disease, unemployment, failure in business, divorce, poor financial choices or reckless spending. Before you decide on whether to go for debt consolidation or bankruptcy, it is imperative to study and understand both sides to be able to make an informed choice.
What is Debt Consolidation?
Debt consolidation refers to the process of combining multiple smaller loans into a single larger one. The premise of this is to make the loan more manageable by having a longer repayment period and lower monthly payment. The advantage of this option is that it allows the debtor to recover from his financial struggles with payments that are more feasible. This way, he will be able to avoid late penalty fees and improve his credit rating. It is important to remember, however, that debt consolidation is not always the best solution. For one, it is difficult nowadays to find low interest rates for debt consolidation loans. If you do not get rates lower than what you are currently paying for, consolidating your debts will be impractical. Aside from that, extending the payment term to a longer period will mean shelling out more money in the long run.
What is Bankruptcy?
Bankruptcy, on the other hand, is the legal declaration of one’s inability to meet debt obligations. Two types of bankruptcies most commonly used by individuals are Chapter 7 and Chapter 13. Chapter 7 is ideal for complicated debts involving mixed-ownership assets, high value debts, and multiple mortgages. This type can wipe your slate clean without requiring you pay for any of your debts. Chapter 13, meanwhile, combines your debts into a single one that you need to repay for a period of 3 to 5 years. If you fail to make the repayment, the court will order for the immediate liquidation of your assets. The cons of bankruptcy include tainted credit rating, higher interest rates for future loans, high insurance premiums, and difficulty in renting properties.
Which Route is Better?
Both alternatives can give you a chance to alleviate your current financial woes. In some situations, debt consolidation is the better choice while in other cases, your best bet would be to file for bankruptcy. It is also possible that neither can resolve your problem and you should look for other ways. It all depends on your situation and the specific type of debts that you are involved in. In any case, it is smart to consult a competent lawyer who specializes in debt relief options for you to be able to make the right decision.