Life is stressful when you have unmanageable debt, which may cause you to make a rash decision about taking out a debt consolidation loan. Although it can be helpful in less severe cases, lenders often don’t discuss the possible drawbacks. If you haven’t yet decided whether debt consolidation or bankruptcy is right for you, then spend some time looking at both options realistically. Conducting online research and speaking to others who have pursued both choices is the best way to go about this.
What is Debt Consolidation?
Debt consolidation is when you take out one loan to pay all of your creditors and then make a single monthly payment to the lender. When you have bad credit, you often have to put up your vehicle or other valuable property as collateral. Your other accounts show paid in full on your credit report, but they still retain the prior payment history for as long as the law allows. However, your decision to enter into a debt consolidation plan is not a matter of public record as bankruptcy is.
One of the significant problems with using debt consolidation to resolve financial issues is that eventually, the combined payment may become too much to handle. You may get into another vicious cycle by taking out a new debt consolidation loan to pay off the old one. Your financial problems escalate as you start receiving collection calls and letters once again.
When Bankruptcy is a Better Option
People who are deeply in debt sometimes choose debt consolidation over bankruptcy because of the long-term ramifications of the latter. While it’s true that a Chapter 7 bankruptcy remains on your credit file for up to 10 years, the filing also gives you the opportunity to restart your financial life. Creditors cannot contact you, and you’re able to keep your home and car in most cases. You don’t have the stress of wondering how you’re going to manage your debt consolidation payment every month or worry about losing the collateral you put up to it.
Deciding how to handle your overwhelming debt can be extremely stressful. Speaking to a financial counselor about your options can help you make the best decision for your situation. You may also wish to schedule a free consultation with a bankruptcy attorney, but it’s important to understand he or she has a vested interest in what you decide to do. It won’t be easy, but with a firm commitment to financial management, you can put this troublesome chapter of your life behind you.