Debt consolidation has always been beneficial over bankruptcy as far as creditor’s interest is concerned. Whereas in Chapter 7 or Chapter 13 bankruptcy, creditors get nothing or very little from the debtor, the debt consolidation system shows positive and systematic money management in favor of them.
Debt consolidation beneficial for both:
Debt consolidation in turn could be extremely advantageous for consumers as the consolidation company would negotiate the reduced interest rate, lower monthly payment, reduced balance, cut off late fees and finally set up the time to be debt free. So in the long run the consumers can save large amount of money. Secured loans like car loans or mortgage loans don’t come under consolidation. Unsecured loans like bank credit cards, department store credit cards can be put into debt consolidation program.
Finally from creditor’s point view, dealing with debt Consolidation Company is beneficial. Here at least the consumer is showing an honest, strong effort to pay off the debt. And, by avoiding bankruptcy debtors can preserve their credit background.
Now for a consumer who is under severe debts pressure can look for either wiping out the debt in total or repaying it over a period of time. So which one to opt between both of the options – Bankruptcy filing or Debt consolidation? If it is the bankruptcy, it permits consumers to remove all of their debt and start fresh. If it is the debt consolidation you can make one payment to a debt consolidation company who in turn would combine your unsecured debts and disperse the funds for you.
Let us analyze which one looks smart and yet creditworthy?
Bankruptcy filings have many odds:
Initially from financial point of view bankruptcy may seem advantageous. But it is not that easy to file a bankruptcy and get relieved from massive dues with little effort. Even if it is Chapter 13 bankruptcy you won’t be complete debt free, it just extend the tenure of the repayment according to your convenience. Moreover Chapter 7 discharge doesn’t apply to the debts created after the bankruptcy filing or so. And, the most negative aspect is the destruction of consumer credit background. Consumer looses the creditworthiness which can pose many problems in future.
Usually after a bankruptcy, a creditor has difficulty establishing credit to the debtor for next seven years. Even if a creditor proposes to extend credit, the interest would be high and credit term would be less for the debtor. Thus from a consumer’s point of view also bankruptcy have several side ill-effects.