Credit Card Debt Consolidation vs. Bankruptcy - Which is Better?
If you are in massive debt and you just can't afford to pay it, should you opt for credit card debt consolidation, negotiation or file for bankruptcy? It is difficult to say which is the better option - it depends on your individual situation. Debt consolidation loans may be the perfect solution for some people but it won't suit everyone.
In order to get a loan you need to qualify for one. In other words, not everybody who wants one will be eligible for one. Whether you will be able to get one depends on your income, credit record and other factors including the amount of money you need to put up in order to get the loan. So what will you need to do to get one?
The three main criteria that determine your ability to qualify for a loan are: 1) whether you will be able to repay the loan 2) your credit score that shows you are a good risk and 3) whether you have collateral to back up the loan repayment. If you don't score well on all three you may not get the loan.
If you are lucky enough to qualify for a consolidation loan you may get a reasonable interest rate which might be tax-deductible. But how long will it take you to repay the loan. You need to calculate what you will pay in total over the life of your loan. Concentrating only how much you pay each month will not give you an accurate picture.
If you do decide to get a consolidation loan there is one important thing you need to do and that is: close any accounts that you have. A zero balance will only make you spend more and you will most likely get into even more debt that you will be unable to repay.
Bankruptcy on the other hand should be viewed as an absolute last resort to your debt problems. While it may see tempting to start with a 'clean slate' there are many penalties associated with this choice. Instead of credit card debt consolidation you might want to consider a debt management plan (DMP). This is like a consolidation loan but has added benefits like interest rates and fees that are lower thanks to a counselor negotiating on your behalf.
