You’ll never get out of debt … the credit card companies will start charging insane interest rates … and your home goes into foreclosure. Unfortunately sometimes these situations are very real, not quite nightmares, but close. How can you avoid losing all your assets, impossible interest rates, and save your home from foreclosure?
Some might tell you debt consolidation is the answer, that bankruptcy is only your last resort. Is bankruptcy really your last choice? No, bankruptcy may be the best option, for reasons such as discharging debt and stopping nightmares like foreclosure. Debt consolidation has many more negatives than bankruptcy in most cases. Why? Many are dishonest. Beyond that, it may damage your credit, not save it from the brink. Let’s go over the details.
Do they have your interests in mind?
Most debt consolidation companies aren’t dishonest, but they’re out to make money just like most of us. That means they’ll be looking at their own bottom line before yous. True, this sometimes occurs in bankruptcy, but the lawyer is the only one benefiting, and many creditors dislike bankruptcies because it slows the rate of payment (if not eliminating it entirely). When your creditors are against bankruptcy, you may find it be your best option.
Payments
How do debt consolidation companies work? You still pay the bills, you don’t eliminate them. Technically, debt consolidation companies hold no cards you can’t play yourself. That means you can do what they’re doing and avoid the fees if you really want to. They are easier of course, and in some cases it can be helpful. If you can’t keep up on payments, however, then there’s no point in even trying. You still pay, just reworking how you pay. It may seem better at first until you incur new debts or cannot afford current debts any longer.
New Debts and Bad Spending
Another drawback of debt consolidation is that if you create new debts, you’re back at square one. If you have serious spending problems, it only encourages you to continue. Where a bankruptcy can be life changing, consolidating debts makes it possible for you or a loved one to continue creating debts.
Why not bankruptcy?
Bankruptcy too has disadvantages, but it’s impact on your debt situation is usually greater. Bankruptcy will stay on your credit report for 10 years. However, it’s clearly superior to debt consolidation, especially when your debts are out of control.
If you have huge bills created by medical and credit card debt, you can discharge these with Chapter 7 bankruptcy. Chapter 13 bankruptcy is less common but still positive as you get more time to pay back debts.
What kind of bankruptcy?
Chapter 7 is far more common; about 3 in 4 people who file bankruptcy use Chapter 7. That’s because some need to discharge debts they simply cannot pay, such as huge medical bills (one of the biggest reasons for filing). Chapter 13, however, has benefits too. A debt consolidation plan may try to save your home from foreclosure, but Chapter 13, if accepted, means a judge appointed by law can file an automatic stay on your home. You can save your home with Chapter 13.
As you can see, debt consolidation may hurt you more than help. Bankruptcy too has negatives, but it’s the better option for those with high credit and medical debt, or who want to stop a foreclosure.
