Considering Bankruptcy?
Weigh your Options…
When it comes to the issue of debt resolve, clearing the board by declaring bankruptcy can be an enticing option. But there may be better solutions.
Declaring bankruptcy can be costly and you will lose assets (though not all). There are also various bankruptcy duties that you must perform. Perhaps most important, your credit rating will drop for an extended period of time. In fact, obtaining any kind of credit after declaring bankruptcy may mean increased interest rates or security deposits.
In any event, declaring bankruptcy may not be necessary. One alternative you should seriously consider is ‘debt consolidation.’ Essentially this entails gathering all your debt together and making one regular payment on the new loan.
Simplicity, Savings and Success -
Why Consolidation Could Work for You
In three words, the ‘pros’ of debt consolidation are simplicity, savings, and success.
Simplicity: Consolidating your debts into one monthly payment frees you from having to juggle the welter of debt payments you may have on credit cards and with other creditors. Many of those debts will have different payment schedules – and varied rates of interest. For the average person with a multiplicity of debts, it becomes confusing and unwieldly exercise in always paying what is more pressing. But when the payment schedule is reduced to one consolidated payment, you are far less likely to miss a payment.
Savings: You may discover a savings advantage from consolidation in the form of a lower interest rate. No longer will you be at the mercy of the variable interest rates of your credit cards – your debt will be consistent at a rate that you have worked out you can handle. No surprises! And if you are saving money by paying your loan at a lower rate, you may be able to pay off the debt earlier.
Success: Competing and confusing payment schedules make it tough to budget successfully, and then stick to it. Simplifying the process is a big step towards negotiating your way out of debt. Going hand in hand with this is that your credit rating will be boosted over time.
Is There a Downside to Debt Consolidation?
Debt consolidation is not a magic pill and there are some considerations on the ‘con’ side of the ledger. If your credit rating is poor, it is likely that a debt consolidation lender will offer you a loan – at a high interest rate. The lender could also require security to be place on your loan.
The loan itself may be for an extended period of time – so you may end up paying more interest over time than you would have had
you managed to pay off your array of debts without consolidating them.
Psychologically, it is important to understand that a debt consolidation is not the end of your financial obligations. The
clarity and freedom from the constant harassment of competing claims can lead to a false sense of security – and a willingness
to incur more debt. This has to be resisted!
That said, overall debt resolve through consolidation has many important ‘pro’ points. Give it careful consideration before taking a drastic step like declaring bankruptcy.
