Debt Consolidation or Bankruptcy
Debt Consolidation is a process through which Debt Consolidation agencies offer to buyers one loan that would satisfy some of their debts i.e. several smaller loans consolidated into one bigger loan.
They wouldn’t cover debts like child support arrears, tax debt to name a few, and some of the unsecured ones. If they cover unsecured debts, it would be on much higher interest rates than you were paying initially.
You constitute a credit risk if you have missed some monthly installments or are irregular in paying and banks won’t, normally, give loans to you. To end this situation, you might desperately be looking for a quick fix way, this is where Debt Consolidation Companies step in. They take advantage of your bad plight and entice you with promises of fast relief, lower interest rates etc.
It is not a disputed fact that you always pay off your consolidated loan at a higher rate than before. The truth behind lower monthly installments is two-fold, first is loan period is extended and second is if you calculate the amount you pay through these lower monthly installments to Consolidating agencies over the life time of the loan, you’ll understand why Debt Consolidating business has soared so much. Simply put, extended loan period, higher interest rates, ending up paying considerably more.
Consolidators charge fees for their services from debtors, which depends on the terms of the contract. They also negotiate with your creditors, who most often than not take lesser amount in satisfaction of full, so here also, you suffered two fold loss, firstly you had to pay to the Consolidating Company of which there was no need, if only, you had not opted for this program and secondly, you could have negotiated with your creditor to lower down your debt yourself, if only, you knew about it. Plus there are hidden costs as well which you will come to know about along the way.
You can’t get out of debt through Debt Consolidation, you just get deeper in it and the worst part is you don’t even realize what you got yourself into until one day the bubble will burst and you’ll see the baring truth.
If you have more debts than you think you can handle than there are other ways and one of the most unambiguous way is Bankruptcy. It is totally honest because this is done under Court’s supervision.
Bankruptcy not just brings you out of your financial crisis but also teaches you how to change the habits that got you into it by way of credit counseling and personal financial management seminar.
Well-informed people choose Bankruptcy over Debt Consolidation because they know that though Bankruptcy stays on your Credit report for ten years but you can start building your credit the day Bankruptcy completes. As the time required to complete bankruptcy is much shorter than the time it would take to complete Debt Consolidation, so, it means that you can start rebuilding your credit considerably earlier. For both secured and unsecured debts, Bankruptcy remains a better option.
Chapter 13 and Debt Consolidation
The main difference between Chapter 13 Bankruptcy and Debt Consolidation is that in Chapter 13, unsecured debts are crammed down and interest rates are lowered on secured debts and no interest can be charged while Bankruptcy is underway. However, it is very unlikely that any Debt Consolidation agency will consolidate your unsecured debts completely because of the risk involved with no pledged collateral and if they do, they will charge ostensible interest rates.
Chapter 7 and Debt Consolidation
All the unsecured debts are paid in full and you can start afresh almost immediately. While in Debt Consolidation, you end up paying substantially more and continue to pay for many years.
The definite way to get out of debt is by committing yourself to a plan with no false promises, no danger of deception and changing your spending habits.
If you are still not sure whether debt settlement/debt consolidation or bankruptcy is right for you, then speak to a bankruptcy lawyer today to get a better understanding of your options.