A lot of people have debt. Some are struggling, while others including myself are working hard to pay it off. If you’re struggling with your debt, I know that you possibly have considered bankruptcy or debt consolidation before. Do you consider debt relief a better option than bankruptcy? Do you think bankruptcy will help you out? There are arguments for both sides. It depends on your situation. There are a few things that you should consider.
Pros & Cons of Debt Consolidation
We all know what debt consolidation is right? It is taking one big loan to pay off your other debt. One drawback of debt consolidation is that you are not out of payments. You will still owe money. You still have to make a debt payment every month. It may be a smaller payment so it might be more manageable.
One key benefit of debt consolidation is that it can address other kinds of debt that bankruptcy can’t eliminate. Some of those types of debt are alimony and child support. With debt consolidation, you’ll have someone that will take you by the hand and guide you through the debt repayment process. That can be a good thing especially if you’re stressing about payments.
One of the main things you need to ask yourself about any debt consolidation program is if you can stick with it or not. Certain statistics show that only 55% of the people who sign up for a debt relief program make it all the way through. So, 45% of people will spend months or years going through the debt repayment process and then give up. That’s crazy. Not only does that cost them money, but it could slow the process of them getting better credit.
Pros & Cons of Bankruptcy
People have different thoughts when it comes to bankruptcy. Some say they will never file for it. Others don’t mind. If they get into a financial situation, they will do what they have to do. The main benefit of bankruptcy is that you basically owe nothing once it’s done. As started earlier, with debt consolidation, you still have to make payments every month to the consolidation company. If you file bankruptcy, you don’t have to pay any more.
The next thing is a huge con. A bankruptcy will knock your credit score down by 200 to 250 points. That’s not something that I’d want to happen. I’ve worked very hard over the last couple of years to raise my credit score to over 700. I wouldn’t want one decision to mess it up.
If you decide to go the debt consolidation route, it is usually reported, but creditors as settled on your credit report. It will impact your score by only 50 points. Your bankruptcy will not only mess up your score; but it will also do something else. Future creditors who see a bankruptcy on your credit report will know that you ran away from your debt. Some of them would be less likely to trust you in the future.
If you have a lot of debt, you want to try to pay if off. If you are struggling, then debt relief may be the better option for you. Just make sure you can stick to the plan. It takes discipline. If you really are having problems, then you may be better off filing for bankruptcy. Before you make any decision review your situation.