If you’re struggling with debt, it can often seem like there’s no way out. Wage garnishment, debt collectors calling at any time of the night and that sinking feeling that you’ll never be free again are just a few of the things you may be dealing with when you have serious debt. However, there are options you can pursue when you’re wrestling with debt. Consolidation and bankruptcy are two options many people consider. If you’re thinking about taking on one of these major debt solutions, here’s what you need to know:
What You Need to Know About Consolidation
Debt consolidation can be an excellent solution for paying down your debt more quickly. Consolidation is technically a loan that you’re taking out that will pay off your debts. Instead of repaying multiple creditors, you’ll be repaying a single loan. Of course, much like anything involving debt, there are a few downsides.
First of all, debt consolidation can show up on your credit report for a time, which may make it more challenging to get credit. However, if you’re planning on overhauling your finances, you probably don’t need that new credit card anyway. Make sure that your debt consolidation program won’t turn unsecured debt (for example, credit cards) into secured debt (like a home equity loan), since this can make pursuing a bankruptcy in the future more challenging. No matter what type of debt consolidation program you choose, there are a few bills you’ll still need to pay yourself, such as your house payment and student loans.
The positives of debt consolidation are quite clear: You’ll get a lower interest rate, late fees can be waived, and the consolidation company will negotiate with your creditors for you. It can put a stop to all those phone calls from creditors.
What You Need to Know About Bankruptcy
Bankruptcy can seem like the more dramatic option. It wipes out most of your outstanding debts and gives you a clean slate in exchange for a painful reduction of your credit score. However, bankruptcy may be your only option. If you’re making too little money or have too much debt to reasonably handle through debt consolidation, bankruptcy may be your only option.
Bankruptcy does come along with some pretty hefty negative aspects. First of all, it shows up on your credit report for many years following your successful bankruptcy. You may also be required to liquidate, or sell, your assets in order to pay your debts. This does mean you may lose your house or car. It may be harder for you to get new credit following a bankruptcy.
Although it can seem like there are no benefits, bankruptcy gives you a fresh start. It’s your chance to build healthy financial habits without worrying about crushing debt hovering over you. If you’ve met with an accountant or a bankruptcy attorney and determined that there’s no way you can successfully pay off your debt on your own, bankruptcy could be a good way for you to clear your name and start over.
The choice between debt consolidation and bankruptcy is a tricky one. Every person will have a different set of factors that determine what they choose to do. However, any step toward paying off your debts or having them discharged may be a good one if your debt has gotten out of control.
About the Author
Carly Lance loves to blog about personal finances whenever she can. She also is employed as the blog and marketing manager at Personal Bankruptcy Canada, a company that deals with people going through bankruptcy in Canada.