Debt Consolidation vs. Bankruptcy: Which Should I Choose?
/The Federal Reserve Bank of New York reported that the total household debt exceeded $16 trillion in the second quarter of 2020. If you struggle to pay your debts, you may have considered debt consolidation with a lender, such as Symple Lending or court-supervised bankruptcy, as a financial option. So, how do you make the right choice for yourself?
Debt Consolidation and Bankruptcy: The Basics
Debt consolidation is a debt management strategy where you restructure your debts into one and then take one loan that covers all your debts. As a result, you now only have to make payments for one loan. With a debt consolidation loan, the aim is not only to have all debts in one place, but also to have reduced interest rates.
On the other hand, bankruptcy is a last-resort court procedure that helps people trapped by insurmountable debt. It gives debtors an option not to honor their contracts. There are two types of bankruptcy—chapter 7 and chapter 13.
Factors to Consider before Choosing
Both options have pros and cons; one can be better for you in specific circumstances. Here are some of the factors you can consider before choosing:
Your Credit Score: A good credit score will allow you to access a debt consolidation loan, and you can improve it if you make timely payments. Bankruptcy is a better option if you have a bad credit score. However, your credit score will be badly impacted for a long time.
Your Current Financial Status: If you can make timely payments each month, it’s best to choose a debt consolidation loan. If your current financial situation is so dire with no possibility of change, bankruptcy might be the better option. Just as you might consult an insurance claim denial lawyer when faced with an unjust denial, seeking professional advice in financial matters is crucial to making the right decision.
Your Long-term Financial Goals: Do you want a higher credit score and financial stability? A debt consolidation loan is the better choice. However, you can choose bankruptcy if you have crippling debt and need a fresh start.
Amount of Debt vs. Your Income Stability: If you have an enormous debt with no possibility of paying it back, you may qualify for chapter 7 bankruptcy. A debt consolidation loan may be the better choice if you have a smaller debt and a stable income.
Final Thoughts
So, which do you choose? Debt consolidation loan or bankruptcy? Every factor held constant; debt consolidation may be better because you can protect your credit score.
Experts at Symple Lending can help you understand the implications of consolidating your loan. However, if you have an enormous debt, your income is unstable, and you want a fresh start, you can choose to declare bankruptcy if you qualify.