The Truth About Debt Consolidation vs Bankruptcy
The Truth About Debt Consolidation vs Bankruptcy
Debt consolidation is just a mere merging of various unsecured loans, which are taken from different creditors, into one secured loan. However, you do have to pay off your debt. And since debt consolidation programs have longer repayment schedules, you continue to be in debt for a longer time than as per your original loan agreements.
Therefore, the initial advantage of smaller monthly payments due to a lower interest rate is more than neutralized by the longer payoff period. At the end of the day, you end up paying much more and remaining indebted for much longer if you opt for debt consolidation.
Another disadvantage of debt consolidation is the high fees charged by the debt consolidation firms. various part of these fees are charged even before you are purveyed any service, ostensibly for carrying out background checks and the economic adequacy of providing you this service of debt consolidation. If you do not qualify, and they do have stringent standards, you still end up losing money. Even if you do qualify, the high fees largely expand your total outgo.
Also remember, once you miss even a single payment on any of your loans, your credit score starts taking hits. Entering a debt consolidation scheme continues to affect your credit score for a long time because entering the program is considered a default, which will be reported like a late or immature payment every month, for as several months as you are enrolled in the program.
Bankruptcy, on the other hand, wipes the debt slate clean and allows you to begin life anew. Yes, it will impel your credit score and yes, it will remain on your credit report for up to 10 years, but you can begin building up your credit score from the first day itself.
as a result, in as soon as a year after you are stated bankrupt, you can build up a beneficial credit score by taking out small loans on high interest (because low-interest loans will not be firstly given to bankrupt individuals) and paying absolute installments on them. This efficiency to repair your credit score in such short a time does not exist with debt consolidation.
Here are some rapid and easy ways to better your credit score post-bankruptcy:
1. Get a credit card, make ordinary purchases, however small, and religiously pay the balance every month.
2. Open a savings account and conduct regular deposits, however small.
3. Close open bank accounts that are not being used.
All in all, bankruptcy is considered a better option as, with the debts being discharged, the debtors become free from the stress and anguish over how they will make ends meet. This emotional and financial relief is something that can change the debtor's life from worry to new hope.
By not going with debt consolidation, the debtor will be preferable for new loans within a few months. At first the loan rates might be high but finally the debtor will acquire a chance to improve his or her credit. The lower fees assembled with bankruptcy make the return to financial solvency and stability much easier.
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