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Debt consolidation versus bankruptcy

When you have gotten in too deep into debt to see a reasonable way out, you may start looking at your long-term goals. Will paying eight credit card companies hundreds of dollars a month for the next six years really get you where you want to go?

People looking to clean up their credit and get back in good financial standing have a few choices. Debt consolidation companies promise to help get you back on track for a small fee, while bankruptcy may wipe out your debt entirely. What is the better choice overall?

Debt consolidation is a loan

You may believe a debt relief company is the best course of action for your finances. You have read that they negotiate with creditors to get lower interest rates and payments. These companies then loan you the money you need to pay off the debt, and you pay the company back in a lower monthly payment every month. Sounds like a good way to get rid of those pesky debt collectors, right?

Debt consolidation companies do not do all this work for no benefit. They charge you fees as part of the loan you take out. While the allure of a lower monthly payment may suck you in, stop and look at the finer details. Often, it will take you years longer to pay off the debt, thus increasing your debt, not decreasing it.

Bankruptcy is a legal route

Bankruptcy elicits all sorts of negative images when mentioned. You may believe you have to give up your cars, house and everything you own. Chapter 13 bankruptcy allows you to keep secure debts while giving you the option to pay off your unsecured debts, such as credit cards. Once you complete the court-ordered payment plan, typically within five years, the debts discharge leaving you in a better financial situation.

Needing help to get financial relief from creditors is becoming a nationwide problem. The way you go about cleaning up your credit has a lot to do with the way you view bankruptcy. Do your research and talk to a professional before engaging the services of a debt relief company.

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