When you’re in debt, two of the options you may look into are bankruptcy and debt consolidation. Both have the potential to help you, but they do work differently. For example, a Chapter 7 bankruptcy may ask you to liquidate some of your assets to repay what you owe. Chapter 13 bankruptcies may consolidate debts but discharge remaining debts after the bankruptcy is complete. Debt consolidation may reduce your payments, but you will pay back what you owe in full.
Today, an average family owes around $15,094 in credit card debt, and that doesn’t begin to consider medical expenses, utilities, student loans or other debts that they’re trying to manage. With close to half of American households carrying month-to-month debt, it’s not surprising that you are considering these options to get yourself into a better financial situation.
Should you choose bankruptcy or debt consolidation?
Bankruptcy and debt consolidation can both be good choices for you, depending on your circumstances. Debt consolidation helps you reduce your interest rate and lower your overall monthly payments by merging your debts into a single loan.
Debt consolidation can help you reduce your monthly payments and eliminate some interest expenses, but you will still pay back what you owe, plus interest, over the life of the loan.
In comparison, bankruptcy helps you eliminate debt completely, and you may not have to pay back what you owe in full. With bankruptcy, you get a fresh financial start and completely eliminate unsecured debts. You can also stop repossessions, wage garnishments, foreclosures, utility shut offs and debt collection efforts.
Not everyone qualifies for a Chapter 7 bankruptcy, but if not, then Chapter 13 may be an option to consider.
Choosing debt consolidation is a good idea if you haven’t missed payments and have a good credit score. If you can make payments on time, then this is a good way to reduce your expenses each month and to still pay back your debt.
On the other hand, if you’re missing payments and are seeing your home or property threatened due to foreclosure or repossessions, then bankruptcy may be a better option.