Credit Consolidation Versus Bankruptcy

A consumer who is finding her monthly financial obligations too much to handle will start to consider options such as credit consolidation or even bankruptcy. Before you start talking to a lawyer about declaring bankruptcy, you should take the time to understand how debt consolidation compares as a financial debt management option.

Bankruptcy is normally done as either a chapter 13 filing or a chapter 7 filing. A chapter 13 filing is one in which the consumer is allowed to keep most of his assets, but has to pay off his debt according to a court-mandated plan. A chapter 7 bankruptcy forces the consumer to liquidate all assets that are not considered exempt, and then that money is applied toward paying off debt. Exempt items include certain pieces of furniture, work-related tools and vehicles.

The first problem with bankruptcy is that you have to qualify for it. You file a petition with the courts, submit all of your financial information and then hope that the court determines that you qualify for bankruptcy. You do not need to qualify for debt consolidation. If you have two or more high interest credit card accounts, and you want to consolidate them, then you can.

Credit consolidation is something you can do on your own without damaging your credit score. You can get a personal loan or home equity loan, pay off your debt with it and then start making your loan payments. You may actually improve your credit by consolidating it. Bankruptcy ruins your credit rating for a period of eight to 10 years.

After a bankruptcy filing, you will find it extremely difficult to get financing for years. If you need to buy a new home because of a work transfer, then you may not be able to get a new mortgage and would have to rent a place to live. As long as you keep your debt under control and your credit is good, you should not have any problem getting approved for financing after consolidating your debt.

Debt management can seem overwhelming and the choices can seem frustrating. Understanding the basic differences between debt consolidation and bankruptcy can help you to make the right decision for your situation. It could be that a credit consolidation loan is a very good financial decision for you. Be sure that you investigate all of your options thoroughly and know when it is time to consolidate instead of taking the extreme step of bankruptcy.         

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Benefits of Credit Consolidation

  • Make ONE payment per month
  • Reduce your payments by up to 55%
  • Stop creditors harrassment with Credit Consolidation
  • You will only speak with a certified credit consolidation counselor
  • Absolutely no credit checks or obligations