Debt Consolidation vs. Bankruptcy
There are truly too many reasons as to why you should go with
one over the other, with the main one being your credit history.
When you file for bankruptcy it stays on your credit report for
seven to ten years. That means that for a decade you are going
to be unable to get a loan for anything without a hassle. You
might get a small loan that is secured against something else,
but you will pay a very high interest rate to get it. This is
how the world works. If you don’t pay your debts people do not
want to loan you money for fear that you will not get it back.
Now, does it eliminate your debt faster than a debt
consolidation does? Absolutely. And if you are in a position
where you are never going to be in a place where you can pay
back your creditors and are dealing with harassing phone calls
and what not, then you will probably want to get one. But it
should always be viewed as a last ditch effort. A debt
consolidation simply puts it all into one lower monthly payment,
and yes you have to pay it all back – unless you go with a
tandem debt settlement and debt consolidation loan. But you will
keep a better credit score and will be able to recover much
faster than if you don’t.
Let’s say you have Consumer A who files for bankruptcy and
Consumer B who gets the debt consolidation loan. Both are
overextended on their credit and that makes people not want to
loan them money. However, five years down the road, Consumer B
has paid off all of their debt and are now able to get other
loans. This process doesn’t even usually take this long.
Consumer A has to wait another five years for his bankruptcy to
fall off his credit report before people will even consider
loaning him money.
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