Unlike what some people think, bankruptcy is not complete surrender, nor is debt consolidation an all-out solution. Both of them are considered as debt management strategies. These are methods that borrowers can use to survive in the most challenging economic times in their lives. But, to answer your question, “Should I consolidate debt with a loan or file for bankruptcy”, here are the advantages and disadvantages of each option.
If you want to pay your debts, save money on interests and probably protect your credit score, debt consolidation is a good strategy to take. You simply re-organise your multiple debts into a single payment by getting a secured or unsecured loan.
Here Are the Pros of Debt Consolidation:
Getting a loan to consolidate your debt protects your reputation as a borrower because first and foremost, it is not something of public record. It shows up on your credit report but it will not lower your credit score. In fact, it works the other way around. By allowing you to pay off multiple debts, your credit score may eventually increase. Bankruptcy on the other hand is viewable by any interested party.
It simplifies debt repayment. If you have a low credit score it means, you have a problem with debt management. It doesn’t necessarily mean that you don’t have the funds to repay your loans. Sometimes it is just a matter of debt management. By consolidating your debt, you are able to pay off multiple debts with different interest rates, without worrying which creditor will knock on your door or file a lawsuit against you. By getting a loan to make a convenient payment, you are able to lower your monthly payments and interest rate. Sometimes you can also shorten or lengthen the loan term, which ever works best for you. As a result, you can enjoy your spare cash and spend it on your top priority needs.
Here’s the Downside of Getting a Debt Consolidation Loan:
If you take out a secured loan and you default on loan repayment, you could end up losing your property. So, make sure that you don’t attach collateral lightly. Think about your ability to repay the new terms of the loan, before signing up for a secured loan. It is also important to read cross-collateralisation terms. For example, Lender X has financed your car. If you take out a debt consolidation loan from the same lender and you default on it, Lender X can go after your car it has previously financed.
There are also hidden fees and tax liabilities that may end up costing you more than what you signed up for. So, whenever a lender offers you a specific loan rate, check the overall computation. Make sure that the interests and monthly payments are exactly what they appear to be in the advertisement. Sometimes, you can get lower monthly fees and monthly interests rates because the period of your loan was extended.
If you want to restructure your debts, eliminate several types of financial obligations and take advantage of the supervised repayment plan, file for bankruptcy.
It protects you from creditors who may be harassing you or filing lawsuits, garnishments and foreclosures against you. The moment you file for bankruptcy, you will benefit from automatic stay.
Credit collectors and creditors will be prevented from collecting money from you. Since bankruptcy eliminates medical debts, credit card bills and many unsecure debts, you can start with your finances all over again. While you may lose your real estate and personal properties (like a car) the moment you surrender them to avoid paying off those debts, having zero debt is enough to make you feel good. You also have the option of keeping those properties, as long as you are willing to work on a repayment plan which is supervised by the court.
But, Are You Ready to Face the Drawbacks of Bankruptcy?
Bankruptcy negatively affects your credit rating. It lowers your credit score and it stays in your credit file for up to a decade. You may also lose some of your personal possessions and you may have to stick to your budget so you can get back on the right financial footing once again. It is also difficult to get a credit the moment you have filed for bankruptcy. You need to get permission from the court before you can apply credit within the next three or five years.
Bankruptcy is also available on public record. Everyone to whom you owe money will most likely know about it, and if you are sensitive when it comes to your reputation or privacy, this option may not work for you. Your current employer may also learn about your bankruptcy case especially if agreed to through payroll deductions to settle your financial obligations.
Do you want to know more practical answers to your question, “Should I consolidate debt with a loan or file for bankruptcy?” Contact Clean Credit today!