If you and your family are dealing with overwhelming debt, deciding between debt consolidation and seeking a discharge via bankruptcy can be an overwhelming process. After all, each option offers distinct advantages and potential drawbacks.
Ultimately, the best choice for your circumstances depends on the ins and outs of your individual financial situation. Learning about both options can help you to make an informed decision either way.
Debt Consolidation
Debt consolidation generally involves streamlining the payment of multiple debts by rolling them into an account that can be addressed by submitting a single payment each month. There are various methods for consolidating debt, including personal loans, home equity loans, debt repayment plans and balance transfer credit cards.
Concerns that you’ll want to consider before committing to this approach include:
- Simplified payments: Managing one payment instead of multiple debts can make budgeting easier and reduce the risk of missing payments.
- Debt load: Consolidation does not reduce your overall debt load. You still owe the full amount, and poor spending habits can lead to further debt accumulation.
- Secured vs. Unsecured: Secured loans, such as home equity loans, will use your property as collateral, which means you’ll risk losing your home if you default.
Debt consolidation may serve you well if you generally have enough funds to cover your debt payments. But, if you consistently come up short and there is no end in sight, bankruptcy might be a better option.
Debt discharge via bankruptcy
Debt discharge via bankruptcy involves legally eliminating some or all of your debts. Concerns that you’ll want to consider before committing to this approach include:
- Debt Elimination: Bankruptcy can discharge many types of unsecured debt, giving you a fresh start.
- Automatic stay: Filing for bankruptcy initiates an automatic stay, which temporarily stops most creditors from engaging in collection actions.
- Credit Impact: Bankruptcy will have a significant impact on your credit score for a number of years.
- Eligibility and types: Not all debts can be discharged, and eligibility requirements vary between Chapter 7 and Chapter 13.
Deciding between debt consolidation and seeking a discharge through bankruptcy is a consequential matter. Don’t hesitate to seek personalized legal guidance before choosing a way forward.