When you’re drowning in debt, you have two options—you can either file for bankruptcy and let yourself drown more on its risks, or you can apply for a debt consolidation agreement which is like clinging on a slippery rock to be saved. Both are not easy options. So when there’s a need to choose, you need to weigh your options carefully.
Bankruptcy vs Debt Consolidation
First, you have to identify what both terms can do for you:
Bankruptcy is a legal procedure of declaring your inability to continue paying for your debts. Hence, you are requesting for additional protection against your obligations under specific conditions you and your creditor have to agree upon.
Declaring bankruptcy may eliminate all your debts or may restructure the payment depending on your capacity. However, it will greatly affect your credit rating. Once this happens, you will no longer be eligible for other mortgages or credit accounts for at least a year or two. Furthermore, filing for bankruptcy requires hiring lawyers, which will obviously not come in cheap.
Debt consolidation loan, on the other hand, is an option to use a loan that will pay off all your other loans or debts. Through debt consolidation, you will be paying off your debts in a more reasonable rate. However if you are near bankruptcy, there’s a very small chance that you may be qualified.
Which option should you choose?
Nevertheless, to help you identify the best option, here are some tips:
- Assess the extent of your indebtedness by checking your credit report.
- Determine the total amount of your debt, including the outstanding and for-collection balances on your credit accounts.
- Calculate your total income and your monthly income from all financial sources.
If your income is lower than your basic expenses, then a settlement will not work for you. This is because you can barely pay for what you need and adding another debt will only trouble you more.
If you are planning for bankruptcy, you would have to compute for your average monthly income and compare it with the state median income. This will determine whether you are qualified for Chapter 7 or 13.
– Check the underlying conditions and their effects on you for both bankruptcy and debt consolidation loans and agreements. If you can contact an expert for a more reliable suggestion, do so.
The options you are given can save you, but it does not guarantee that things will be back to a better state. The best cure is still prevention. So if you don’t want to get into a tight situation, don’t be too loose in spending.
About the Author: Thirdy Rosales is doing marketing consultation for Debtconsolidation.com.au. This financial institution provides assistance to some personal monetary issues such as dealing with bad credit loans, providing debt consolidation loans and handling bankruptcy issues. You can follow him on Twitter @Tweetendshout.