subject: Bankruptcy Versus Debt Consolidation [print this page] Bankruptcy Versus Debt Consolidation Bankruptcy Versus Debt Consolidation
More people are in greater debt today and for more money than at any time in our country's history. And, many people, finding themselves unemployed and their credit card debts piling up, often look to bankruptcy as a way to get out from under the onslaught of bills. It is true that filing for bankruptcy can liquidate the majority of your debts. But getting rid of your debts this way comes with some disadvantages as well.
One of the primary drawbacks, and one that will stay with you for a fair bit of time, is that your credit rating will take a severe hit. And, two, if you do have assets, you can possibly lose them through bankruptcy. So, while bankruptcy is definitely a viable option to consider for someone who is deep in debt, it is not always the best choice.
Fortunately, there are other options. And one of the more popular ones is to sign on with a debt settlement program. The theory behind this is simple. Since the creditor has undoubtedly already been sending you dunning notices and calling your home, he realizes that you are having trouble making your payments.
Of course, he is very concerned about your welfare - particularly, your financial welfare. And of prime importance to him is to prevent from happening, most defaulting on the monies that you owe him. Due to the creditor's concern, you can often negotiate a settlement where he agrees to consider your debt to him paid in full if you pay a lump sum amount. As a debtor, you can negotiate such a settlement yourself. But most people prefer to sigh up with an agency and have that company do it for them.
Another method that some debtors take advantage of is to look at some form of debt consolidation. The basic way of doing this is to take out another loan and use it to pay off your credit card debts. The loan may be another unsecured loan, if your credit is good enough. Or, if you own a home, you could try for a home equity loan. You benefit from this is two ways.
The primary benefit is the interest rate that you will be paying. In nearly all cases, the interest rate that you pay on this second loan will undoubtedly be less than the interest rates on your credit cards. This means that you should be paying less out of pocket on a monthly basis.
For those who have trouble handling multiple bills during a month, there is a second benefit as well. And that is you will only be responsible for paying one loan a month instead of multiple ones.
Nothing comes for free, however. And, as you might expect, debt consolidation has some booby traps that you have to watch out for as well. The primary danger is that once your credit card debts are paid off, you will find it deceptively easy to drift back into the same bad credit and charging habits that got you into the mess. Then, in two years or so, you find yourself back in credit card debt again. Only this time you have your debt consolidation loan to pay off as well.
