Is Debt Consolidation a Better Choice than Bankruptcy?
For many people, debt consolidation is just one option they consider when they want to finally get rid of their debt. Bankruptcy is another. While bankruptcy can allow a person to start over with a blank financial slate, there are several disadvantages to it that need to be considered.
The biggest reason that most people consider bankruptcy is that it allows them to wipe out most of their debts completely. People with large amounts of credit card debt and medical bills often find this very appealing since the process can eliminate these bills entirely.
What to Know About Bankruptcy
Bankruptcy comes at a huge cost, however. Filing often requires a person to hire a lawyer that can cost hundreds of dollars. It can destroy a person’s credit score for years, making it next to impossible to open a credit card, or purchase a car or house. A bankruptcy can also make it hard to qualify for jobs in the financial services or security sectors of the economy.
For this reason, it’s generally recommended that people look at bankruptcy as a last resort. Debt consolidation can be a much better option for people who are able to put some money towards their bills every month. Consolidation allows a person to pay less than they’re already paying, and more of their money can go towards paying off their debt, not just paying interest.
Debt consolidation can also be completely anonymous. Filing for bankruptcy means that the filing becomes public record. Many newspapers and websites publish lists of people who have filed, making it hard to open a business or get more credit. Debt consolidation, however, does not involve any kind of public record keeping. It’s a good way to handle debt problems without advertising to the world that you’re going through a rough patch.
What to Know About Debt Consolidation
Most importantly, debt consolidation doesn’t effect a person’s credit score. Because a new loan is issued to pay off old debts, all a person’s credit report will show is that they paid off a lot of accounts and took out a new loan. In fact, in some cases people report that their credit scores rose after going through debt consolidation.
When debt consolidation is done, a person has eliminated their debts quickly and quietly. Unless it really is impossible to put any money towards debt repayment each month, it really is the better choice.