Choosing Between Debt Consolidation or Bankruptcy

When you’ve reached the point where financial struggles are more than you can reasonably manage on your own, it’s time to look for alternatives to get you back on solid financial footing. After all, there is only so much extra work you can take on and so much juggling of bills you can muster until something has to give.

It is common to feel helpless in these situations, although there is nothing to be gained by feeling shame or desperation. There are alternatives available to you and the challenge is to really understand what is best in your circumstances. The choices in front of you aren’t necessarily straight forward, but you should know there are a few ways to address financial hardship and understanding the ramifications of all the options is the first step to regaining your power in this financial battle.

What is Debt Consolidation? 

Debt consolidation is one option available to those who find themselves over their heads with unsecured debt, credit card balances, or other revolving credit accounts. Debtors would much rather work with you to arrange a lower payment, change the terms of your agreement (such as lowering or eliminating interest charges) or even settle for a lesser amount than have to write it off altogether as a bad debt.

The least impactful debt consolidation approach is for those who still have reasonable credit and who can simply take out one, larger loan under favorable terms to pay off multiple, high-interest accounts. This can lessen the amount of time you’ll have to pay on your debts and maybe even reduce the monthly payment outlay simply by rolling all your debts into one monthly payment. This is preferable to continuing to pay on credit cards that only tack on more and more interest charges while you spin your wheels trying to pay them off. This kind of debt consolidation has a beginning and an end and is extremely helpful to some individuals looking to get out from under crippling debt.

Credit Counseling and Debt Renegotiation

Another kind of debt consolidation falls more into the category of debt settlement. There are many reputable firms (and many not so reputable, so it is important to be careful who you choose to work with), who will work on your behalf to settle your debts for a portion of what you owe. This arrangement is managed by paying a set amount on the newly settled balances until your obligations are cleared. You should know that you will no longer be able to use those credit cards or accounts and your credit rating will be impacted. Rather than showing debts as paid in full, the credit bureaus will report debts as having been “settled,” which can have negative consequences for those who may need to purchase a car, home, or other goods on credit sometime later.

What if I Choose to File Bankruptcy?

Taking the step to file for bankruptcy is a serious decision, but for many in unbearable financial situations, it is the best choice. Bankruptcy may provide full or partial debt forgiveness and most importantly, brings a halt to harassing phone calls or collection efforts.

Of course, there are several kinds of bankruptcy plans, ranging from those that eliminate most debt or financial obligations to those that impose a structured resettlement plan under the court’s oversight and management. It does involve fully disclosing all debts, sometimes surrendering non-exempt assets, and/or reorganizing financial assets into more manageable terms. Filing for bankruptcy will negatively impact your credit rating for years to come, but sometimes it is the only right answer. 

How Will I Know What is Right for Me?

First of all, know that making this decision isn’t one you have to make alone. Find a trusted financial advisor or contact a reputable bankruptcy attorney who can help you explore the options as they apply in your specific situation. It is a complicated decision and the process to work toward debt forgiveness or relief isn’t simple.

Request your free, in-person bankruptcy consultation by calling Fresh Start Law today. You’ll receive a judgment-free, honest assessment of your situation and the help you need to determine the steps to financial freedom. Call us at 410-874-7249. We are here to help you get back on track.