Given the kind of economic situation prevalent all around, almost everyone’s in debt. This is essentially why debt management strategies are at the forefront and you’ll get to see advertisements in this regard way too often. Now, debt consolidation and bankruptcy happen to be 2 of the most common and prevalent means of debt relief. If you’re wondering about which one you should choose, then read on to find out which one would be the best option for you.
Debt consolidation as a means of debt relief
All those who provide advice on debt consolidation, mostly talk about it as a strategy to save money as well as protect your credit rating. Actually consolidating your debt means you’d be reorganizing all your payments, into one payment. It’s up to you whether you choose to consolidate your debt through a secured loan or an unsecured one.
- You get to protect your credit rating: Debt consolidation is advantageous considering the fact that it’s not a matter of public record. This enables you to protect your reputation as well as your credit rating.
- You get lower rates of interest: Debt consolidation helps you obtain lower rates of interest and you also have a more manageable monthly payment.
- There might be hidden costs: Understand this for a fact that debt consolidation might involve certain hidden costs which can get covered up in the guise of lower monthly payments. There are instances wherein it might just cost you more money.
- You stand to lose property: If you’ve used your property like say your home or a vehicle as collateral for the debt consolidation loan, then there are chances of losing it if you default on the loan.
Bankruptcy is the ultimate answer to your debt woes
Bankruptcy is your ultimate option and through this you might just be able to eliminate or restructure certain debts under the protection of the federal bankruptcy court. Chapter 7 and Chapter 13 happen to be the most common forms of bankruptcy, through which you can eliminate various types of debt.
- You get protection from creditors: Bankruptcy enables you to get protection through the automatic stay. It prohibits creditors and collectors from engaging in any kind of collection activity against you.
- It’s a fresh start financially: This is something that enables you to get a fresh financial start unlike anything else.
- Credit rating has a negative impact: Bankruptcy does have a negative impact on your credit rating. It depends on the chapter you file, it might stay for 7 to 10 years on your credit report.
- You’re required to make certain sacrifices: Qualifying for bankruptcy might also require you to make certain sacrifices such as surrendering luxury possessions, etc.
Now that you’re aware of the basic pros and cons associated with both debt consolidation and bankruptcy, go ahead and make the right decision. Judge your situation well and then opt for the right measure accordingly. Don’t just go with anything that comes your way for after all it’s a question of your finances.