Choosing Which is Right for You – Consolidation, Settlement or Bankruptcy

Finding the Best Way to Get Rid of Your Financial Woes

by Wes Markham

If you’ve been searching around for ways to get rid of your debt, you’ve likely come across three solutions – consolidation, settlement and bankruptcy. Each has its clear advantages and disadvantages, so it’s important that you learn about them in order to determine which is right for you. These options may not be suitable for everyone, but you may find that one or two of these debt counseling options are ideal for your financial situation. Additionally, the Federal Trade Commission provides numerous educational resources about debt to guide you out of financial distress.

Debt Consolidation

You may discover that debt consolidation is right for your circumstances, particularly if you have so many different debtors that it’s become difficult to keep track of them all. With this process, you will have all of your debts consolidated, which means they will be combined together into one debt. Then you will make one monthly payment that goes towards that consolidated amount. You can do this by using a debt consolidation company or a bank that offers this service. You can also possibly get a loan that will pay off all of your debts, leaving you owing money on a single loan, versus having to make multiple payments to various creditors. You can contact your financial institution to see how they can help you with your debt consolidation. Cash advances are also available to if you need quick money for a smaller debt.

Debt Settlement

Debt settlement is ideal for folks who would like to pay off their debt in one payment. Through negotiation between you and the creditor, or a third-party and your creditor, a settlement amount is set, usually significantly lower than the original amount owed. This allows you to take care of debts one at a time at prices that are more affordable than what was previously owed.

Bankruptcy

Out of the three debt options, bankruptcy is considered the most detrimental to your financial well-being. By filing for bankruptcy, you are damaging your credit score substantially and it will be difficult to acquire loans, rent apartments, buy a car or engage in a number of transactions that involve credit approval. Additionally, several laws have been passed that make it more difficult to file for bankruptcy for certain debts. So even if you do file for bankruptcy, you may still be liable for certain debts.

There are two ways that you can file for bankruptcy, Chapter 7 and Chapter 13. Chapter 7 is the most popular and is used to eliminate all unsecured debts, such as credit cards and personal loans. Debts that are usually not eliminated include secured ones like car loans and mortgages. You are required to liquidate all assets that you own, including real estate, bank accounts and such to pay towards your debts. With the Chapter 13 filing, you aren’t required to liquidate your assets. Instead, you are agreeing to pay back your secured and unsecured debts over a specified time period. Chapter 7 filings stay on your credit history for 10 years and Chapter 13 stays for 7 years.

For other alternatives, you may wish to consult a debt or financial counselor in your area.

Your particular financial situation will determine which of the three options are best for you. If you are able to handle lump sum payments at lower prices, then go with debt settlement. If you can’t, but are able to handle monthly payments, then you should opt for debt consolidation. Bankruptcy should be the last option – when you’re absolutely sure that you’re unable to pay back your debts and are unable to negotiate a fair settlement or consolidation plan with your creditors.