Bankruptcy vs Consolidation

Should You Consolidate Your Debt Or Declare Bankruptcy?

A lot of people are facing overwhelming debt right now. If you are one of these people, it might be time to consider your options. Read on to find out when bankruptcy is the best solution and when you are better off consolidating debt instead.


When considering the option of bankruptcy, it is important to remember that there is no such thing as a quick fix. Bankruptcy is really only a good option if you have nothing left to lose. That is because you could actually lose many of your unnecessary assets in the process.

Debt Consolidation

If you have excellent credit or if the majority of your debts are secured debts, then a debt consolidation loan is probably a better option. Bear in mind that bankruptcy will affect your credit rating for at least seven years, and that some debts - like student loans - cannot be dissolved with bankruptcy.

On the other hand, if you have bad credit, excessive unsecured debt and no chance of paying that debt, then bankruptcy could be the blank slate you need.

Before you jump into either bankruptcy or a consolidation loan, take the time to look at your debts as well as your assets and income. If you have enough assets to sell to settle your debt, then you may be asked to sell them when you file for bankruptcy.

If you want to keep your assets and you have a good income, then chances are you can work out a viable payment plan for resolving your debts. Debt consolidation makes that process much easier by renegotiating all your interest rates and giving you one easy payment every month.

Believe it or not, sometimes a single bankruptcy is less damaging to your credit health than copious delinquent accounts. If your bankruptcy will clear all of those bad accounts, then you can use your clean slate to move forward and quickly build a more appealing credit record.

While initially a bankruptcy may make it nearly impossible for you to get new credit, in the long run, if you cannot shoulder the burden of your debts, it is better to cut your losses and start again fresh.

Credit Repair

Debt consolidation repairs credit far faster than a bankruptcy. That is because debt consolidation works to improve all aspects of your credit as soon as you start the program. As long as you make your single consolidated payment every month, all of your once delinquent accounts will be updated to show as current. Likewise, debt consolidation looks a lot better to future potential lenders than bankruptcy, because it shows your commitment to pay your debts.

When seeking advice on your credit, whether you are leaning toward a bankruptcy or toward debt consolidation, be very wary of scams. There are plenty of fly-by-night businesses out there that make promises they cannot keep in an attempt to attract more customers. No legitimate credit advice company will ask you to pay them before they provide you with service.

For accurate free advice on debt issues, check out the Debt section of the FTC website

Because bankruptcy is a permanent decision, you should take your time before deciding whether bankruptcy or debt consolidation is right for you.