There are many options to consider when dealing with overwhelming debt. Two conventional strategies include debt consolidation and bankruptcy.
Debt consolidation combines multiple debts into a single loan with lower interest rates. It can be done by taking out a personal loan, home equity line of credit or a balance transfer credit card.
Advantages of Bankruptcy
Bankruptcy is an effective debt relief tool that can save people from dire financial situations. The long bankruptcy process can negatively impact your credit score and allow you to rebuild your finances. There are many misconceptions surrounding bankruptcy. However, it’s a valid option to help you regain control of your finances.
Filing for bankruptcy at law offices near me can stop aggressive debt collection tactics. The court will immediately place an automatic stay over all of your creditors. They can’t contact you, send bills, or make legal claims against you, like garnishing wages or foreclosure. You may not be able to get the same relief through debt consolidation loans, debt management plans or other debt-relief options.
A second advantage is that you can keep all of your assets. You may have to sell your non-exempt assets if you file for Chapter 7 bankruptcy. However, depending on your province’s laws, you can keep some items, such as your home, vehicle, and other personal belongings. In contrast, a Chapter 13 bankruptcy requires the liquidation of some assets.
Your debts may be discharged completely after three to five years, depending on the type of bankruptcy you have filed. It includes unsecured debts like credit card debt and bills. Your co-signers and joint account holders will not be released from liability.
Considering bankruptcy as a final resort is important after you have exhausted other options. A Licensed Insolvency Trustee can help you determine the best course of action. They will explore all possible alternatives to bankruptcy and offer assistance if needed.
Advantages of Debt Consolidation
A streamlined debt repayment plan can be easier for some borrowers to manage. Debt consolidation combines multiple outstanding loans and credit card balances into a single loan, allowing borrowers to pay down or eliminate their debt with a single monthly payment.
Depending on how the debt is consolidated, it can also lower interest rates and improve credit scores. Typical debt consolidation methods include:
- Taking out a personal loan.
- Transferring multiple credit card balances into one.
- Using a home equity loan or line of credit.
- Even converting some revolving credit into fixed-rate installment loans.
Debt consolidation may be helpful for borrowers who struggle to keep up with their payments, especially if they carry a high amount of debt relative to their income. This strategy can help them make more manageable payments that reduce the risk of late fees and other penalties, such as a return payment charge that can hurt credit scores.
Reducing the number of outstanding debts helps borrowers better understand their current balances and how much they owe. That will allow them to develop a more accurate budget that can help them avoid future debt issues.
Some borrowers prefer the flexibility of revolving credit, such as that found on most credit cards. These accounts can automatically renew, so the debt will be fully paid off once the balance reaches zero. Other borrowers may favor a fixed-term loan with a set interest rate and repayment schedule, giving them more control over their debts. It is important to consider each option’s pros and cons before choosing the best debt solution. A professional financial counselor can help you understand your options and determine if bankruptcy or debt consolidation suits your situation. This could be as simple as a 30-minute phone call or a free online consultation.
