Debt Consoildation vs. Bankruptcy

Bankruptcy means to declare yourself legally that you have no assets or credits in your name by which you can pay off your debts immediately. The most terrible misconception on bankruptcy is that it will erase or flush out all your financial debts so that the debtor is a free bird to start with his or her new life which will be again full of debts. It is just a temporary relief of the debtor’s aggravating pain. It does not give the debtor permanent relief from his financial problems. Because the debtor is being declared bankrupt he or she will be bereft of any financial privileges for the next 5 to 6 years. And this may really be a heavy burden on them in their day to day life as it will become tough to maintain or meet the expenses without any further credits or loans because it gets tougher to get a job once you are declared bankrupt. Bankruptcy does not cancel all your debts like mortgages on property, automobile loans and home loans with security agreement.

On the other hand debt consolidation is not a loan. It is just a mere merging of various unsecured loans taken from various creditors into one secured loan that too at a low monthly installment and a longer duration for repayment of the loan. It can be called a process for eliminating debt and repairing poor credit. The process includes analysis, evaluation and execution of a proper plan to meet the debts. Debt consolidation program also facilitates negotiation with the consolidating company and depending upon the situation the company helps the debtors to get their debts reduced by 40 to 50 percent. Once the creditors agree for debt reduction a systematic monthly plan is devised to repay rest of the amount in small installments.

Debt consolidation is a better option than bankruptcy for slowly and steadily the small monthly installments that the debtor pays assures him of a debt free life in future and the best part is it can be easily managed because the installments are decided upon based on the convenience of the debtor and his financial standing.