A Compassionate,
 Full Service Law Firm

  1. Home
  2.  → 
  3. Uncategorized
  4.  → How to decide whether to pursue debt consolidation or bankruptcy

How to decide whether to pursue debt consolidation or bankruptcy

| Jun 11, 2021 | Uncategorized

Mounting debt can be an overwhelming experience. You might find yourself needing to select between two less-than-attractive options: debt consolidation or filing bankruptcy. 

Both of these debt relief options carry with them their own host of pros and cons. Learning more can help you decide which of these two options might be right for you. 

How does debt consolidation work?

Debt consolidation involves consolidating your debts by taking on more debt, like an unsecured personal loan, home equity loan or a balance transfer between credit cards. The upside to debt consolidation is the possibility of a lower interest rate and just one payment every month versus several — often at higher interest rates.

What does bankruptcy entail?

There are two options to choose from if you plan to file bankruptcy: Chapter 7 and Chapter 13. Chapter 7 allows you to potentially discharge all or some of your debts. You generally can’t discharge student loans in bankruptcy, for example, unless you show that paying them back creates an undue hardship on you. Chapter 13 gives you the ability to repay some or all of your debts under a new repayment plan.

How do debt consolidation and bankruptcy compare?

Debt consolidation isn’t free. Your lender will generally charge you an origination fee on the loan they extend you. Plus, you’ll either need good credit or a cosigner to qualify for debt consolidation, especially if you want to lock in the best interest rate and the lowest possible monthly payment. Your pursuit of debt consolidation could lower your credit score for some time and still leave you in a financial bind.

Bankruptcy offers a quicker, clearer path to financial relief that will put you back on track. While it does damage your credit for a while, most people are able to rebuild good credit in a few years — far faster than they would through debt consolidation.

It can be difficult weighing the pros and cons associated with debt consolidation and bankruptcy. Please continue reading our website’s resources to learn more about debt relief and the options available to you before making any choices about how to proceed. 

Share This