Debt Consolidation – advantages and disadvantages
A debt consolidation program or debt management refers to an agreement made with a debt consolidation company who arranges for lower payments to the creditors. Your monthly payments as well as your interest rate will be considerably lower. This will also put an end to the long drawn trouble of the creditors harassing you. In addition to having to make lower payments, you will also have the advantage of writing a single check every month. You do not need to issue different checks for making payments for credit cards and others.
In fact, all primary creditors take part in the debt consolidation programs. Almost all debt consolidation agencies help with the necessary paperwork and directly coordinate with your creditors. Thus you are saved the trouble of dealing with them directly, although you will receive financial statements from the creditors, which will give you an idea of your progress. The debt consolidation company may also allow direct debit at a particular time every month from your account. Debt consolidation comes with confidentiality and discreetness. Although your credit report will show the information, it is not directly conveyed to your employer.
Bankruptcy – advantages and disadvantages
Bankruptcy sometimes is the sole answer to vicious cycle of debts – and with a good bankruptcy attorney it might be your way out. Approximately about 1.6 million Americans usually file for bankruptcy each year. Individuals can file for either Chapter 13 bankruptcy or Chapter 7 bankruptcy. The former allows a person to hold on to his property or go for “reorganization”. This means the debtor can clear his debts within three to five years instead of having to surrender the property. The Chapter 7 bankruptcy or “straight bankruptcy” comes with having to liquidate all assets with the exception of those which are exempt within a particular state’s law.
There are distinct advantages of declaring bankruptcy. All legal proceedings which creditors have initiated must be stopped and new ones cannot be started. All earnings related to wages as well as property are exempted from claims by the creditors after the declaration of bankruptcy. Bankruptcy gives you the chance to start life afresh.
However there is also a distinct stigma attached to bankruptcy. It will have an adverse effect on your credit rating. There remains a record of bankruptcy for 10 years since the date of filling, but debt consolidation does not remain on one’s record for so long. It will be difficult for you to apply for a car loan or a credit card once you declare bankruptcy. There are still certain debts which you will be liable to bear like taxes, alimony, child support, student loans, etc. Declaration of bankruptcy also brings with it a few court costs as well as administrative charges.
All said and done, debt consolidation appears to be a better approach if we consider such factors like the total time period required to remedy one’s situation, future effect on employment, present law as well as future borrowing requirements.