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Bankruptcy, on the other hand, can reduce the debt, sometimes to zero or eliminate debt altogether. Debt consolidation will not harm your credit score as much as bankruptcy will, but you will be paying much longer than it will likely take to rebuild your credit after a bankruptcy discharge. Deciding between debt consolidation vs bankruptcy is a tough, but critical decision.

Is Debt Consolidation a Good Idea?

Debt consolidation might be a good idea for some people. If you are not having problems paying your debts and simply want to save some money, lowering your interest with a debt consolidation loan could help. You need to have good credit in order to get good interest rates.

A debt consolidation loan could help your cash flow. If you combine multiple credit card debts and other debts into the debt consolidation loan, you could get a lower payment, and stretch the loan out. This could lower your monthly payment. If you have good credit, then debt consolidation may be right for you.

Some regular expenses and debts will remain, and these can include student loans, alimony, and fines. Home mortgages and car loans are likely to be exempt from bankruptcy as well, and if you have elected to file for a Chapter 7 bankruptcy, you will be required to continue making regular payments or risk the bank repossessing your home and car. Before you file for Chapter 7 bankruptcy, you will need to speak with a bankruptcy attorney in order to better prepare for the debts that your declaration of bankruptcy will not erase. Without a home or motor vehicle, it will be significantly more difficult to continue paying off the debts that persist following a filing.

Debt Consolidation loans are not very effective if you are seeking debt relief. There can be a savings, and it can be as much as 10% or more; however, that’s it. If that’s all you need, it will be better than filing a chapter 13, perhaps.

When you’re considering different options for debt relief such as a debt consolidation loan or filing for bankruptcy, it’s best to talk with someone who is trained and certified. Scott Humble has decades of experience in all bankruptcy and financial recovery matters. He’ll make sure you know what to do and what NOT to do.

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