Debt consolidation can be defined as taking out one loan to pay off many others loans. This is normally done to secure a lower interest rate and also secure a lower fixed interest rate or for the convenience of servicing only a single loan.
Debt consolidationis a form of a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as security, most commonly a house or factory in case or a work place etc. In this case, a mortgage is secured against the house. The valuation of the loan allows a lower interest rate than without it, because by valuation, the asset owner agrees to allow the forced sale of the asset to pay back the loan. The risk to the lender’s side is reduced so the interest rate offered is lower.
Consolidation will affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be taken very carefully.
Bankruptcy v/s Debt Consolidation
The Advantages of Bankruptcy:
If you file for bankruptcy, you will be granted immediate but only temporary relief with the automatic stay. The main motive of bankruptcy is the relief of most, if not all of your debts. You are debt free legally once you get the discharge and you can have a financial fresh start.
The Negative Effects of Bankruptcy:
The biggest fallback of bankruptcy vs. debt consolidation is the immediate impact on your credit score. You cannot clear bankruptcy from your credit report for 7-10 years.
The Advantages of Debt Consolidation:
It helps an individual from handling large debts from multiple creditors. It joins all your debts into one single debt management program. It lessens the interest rate and cuts off the late fees on your loans.
The Negative Effects of Debt Consolidation:
It will have minimal impact on your credit score. Till the time you fully pay your accounts, a note saying that you are paying by credit-counseling agency will appear on your credit report.
There is actually no simple solution to getting yourself out of debt. Bankruptcy can instantly donate debt relief but at the cost of your assets and credit score. Debt consolidation is easier with minimum effect on your credit, however, it does take time
For more information on debt consolidation bankruptcy, check out the info available online; these will help you learn to find the bankruptcy vs debt consolidation!
Article Source: http://EzineArticles.com/?expert=Susannha_Jenny
Article Source: http://EzineArticles.com/5997596
Bankruptcy and debt consolidation can both remove your debt. But each will have different effects on your credit score and future financial choices. Before choosing between bankruptcy and debt consolidation, educate yourself on the advantages and disadvantages of each.
The Advantages Of Bankruptcy
Filing bankruptcy will grant you immediate but only temporary relief with the automatic stay. Debt collection by creditors are no longer allowed. Annoying phone calls, repossessions, and mortgage foreclosures are all stopped temporarily. The main goal of bankruptcy is the discharge of most, if not all of your debts. The discharge wipes out many types of unsecured debt like credit card and medical debts. You are legally debt free once you get the discharge and you can have a financial fresh start.
If discharge through a Chapter 7 bankruptcy is not possible, then a repayment plan through Chapter 13 is your next alternative. A bankruptcy repayment plan will allow a debtor to payoff debts over a three- or five-year period. A Chapter 13 bankruptcy repayment plan is like a debt consolidation program with more restrictions.
The Negative Effects Of Bankruptcy
The biggest disadvantage of bankruptcy is the immediate impact on your credit score. You cannot remove bankruptcy from your credit report for 7-10 years. While you can improve your credit score after your discharge, for a few years you will have to work with sub prime lenders. This means higher interest rates on your future loans or credit cards.
Since bankruptcy is a federal court case, you need to give detailed financial records to the court and creditors. Your financial affairs will become open to the public.
On a Chapter 7 bankruptcy, a trustee will liquidate your assets and divide it equally to all your creditors. Under a Chapter 13 repayment plan, payments may be deducted from your paycheck for up to five years. You will need to turn-over your disposable income to repay your creditors.
You cannot use bankruptcy again for the next eight years after the discharge of your debts.
The Advantages Of Debt Consolidation
Debt consolidation saves an individual from handling large debts from multiple creditors. It combines all your debts into a single debt management program. Debt consolidation lowers the interest rate and waives off the late fees on your loans. It also removes the accrued interest and penalties on your loan. Every month you pay only the consolidation company instead of many creditors with different due dates. The consolidation company will manage paying off all your creditors for you. This will lessen the occurrence of late payments on your loans.
Similar to bankruptcy, you can avoid harassing collection calls from debt collectors. The consolidation company will handle and negotiate with your creditors on your behalf. The company is now representing you and all future collections will go through them. After paying all the accounts in full, the company will also negotiate to get your accounts reported in your favor.
The Negative Effects Of Debt Consolidation
Debt consolidation will have less of an impact on your credit score. Until you fully pay your accounts, a remark saying that you are paying by credit-counseling agency will appear on your credit report. Getting and qualifying for a new credit will become difficult at start.
Choosing Between Bankruptcy And Debt Consolidation
There is really no simple solution to getting yourself out of debt. A Chapter 7 bankruptcy can instantly give you debt relief but at the cost of your assets and credit score. Debt consolidation is simpler with minimum effect on your credit, however it does take time.
Ferlix Grant writes for 713DebtorBankruptcy.com. Continue reading the battle of bankruptcy vs debt consolidation and make an informed decision about bankruptcy alternatives. Get info on where you can download FREE debt consolidation e-books when you visit.
Article Source: http://EzineArticles.com/?expert=Ferlix_Grant
Article Source: http://EzineArticles.com/1112949
Why Within our debt-ridden society, many people are in severe financial difficulties. While bankruptcy is the last measure in a bad trail of financial pressures for many, others choose this solution too early, sometimes without considering acceptable bankruptcy alternatives.
There are many options available for you if you are in debt and do not wish to declare bankruptcy. The most desireable option is obtaining a debt consolidation loan and closing all existing personal credit lines.
Click Here and Get More Tips for Your Credit Life Line!
Debt consolidation is where you get a new unsecured loan and use the funds to pay off your current debts.
An unsecured debt consolidation loan will help you in consolidating all your unsecured loans and fend off bankruptcy. This new money will save you hundreds of dollars per month if you opt to use your loan to pay off your current debt – especially your higher rate credit lines. Even if you don’t own a residence, you can easily qualify for their debt consolidation loan.
Debt consolidation loans are due over a longer term at a relatively low rate of interest. This means that the monthly payments are lower. If the loan is secured on your home then the interest rate and payments might be even lower.
But you need to contrast the pros and cons of debt consolidation loans before taking this step. There are two options for consolidating debts – either you get a loan to pay off all your debts or find assistance from a debt consolidation service. The choice on which option will meet your needs has a lot to do with whether or not you can meet the requirements for low mortgage rates on debt consolidation loans, compared to the total amount of debt you need to pay off.
Getting a loan for debt consolidation directly eliminates multiple creditor payments. All debt collection activities are eliminated. Most importantly, this won’t impact your credit rating; in fact it might help better your credit rating. Finding debt consolidation services instantly decreases your monthly payments. It likewise brings to an end, and in some cases, does away with some interest and fees.
Click Here and Get More Tips for Your Credit Life Line!
By getting this loan and using it to pay off credit cards, you will be assessed a great deal less interest. Once you have paid off your credit cards and other debt, you will have a fresh start with your finances and should create a budget within which you can live comfortably without ever having to run up credit card debt again.
Debt consolidation is an excellent mechanism that can assist you manage and decrease your debt when you just can’t seem to do it on your own. There is not a way that you can entirely fix bad credit without the power to decrease debt and pay your debts on time. Still, once your debt has reached a particular level, this can appear virtually impossible to achieve.
Click Here and Get More Tips for Your Credit Life Line!
A credit counselor can provide you with the option of entering in a debt management plan, which allows immediate relief and permits repayment of debts without the high fees and negative complications of bankruptcy.
Nevertheless, your option must be dependent upon your financial situation, as well as fit in with your own beliefs and lifestyle.
What Is Better, Bankruptcy Or Debt Consolidation?
Click Here and Get More Tips for Your Credit Life Line!
There are many options available to us when looking at ways to deal with our debt which can leave us confused. Credit counseling programs, debt settlement, debt consolidation loans and bankruptcy are some of the options we can take. One might want to ask the question what is better, bankruptcy or debt consolidation? I think that one needs to look at each case in its own merit to determine which of the two options offer the best solution to the problem at hand. To understand lets look at what the two options have to offer.
Debt Consolidation
Some people worry that consolidating ones unsecured debts by the use of a secured loan is risky for us and we are not getting into the root of our debt problem but only replacing one problem with another. Others maintain that debt consolidation provides a permanent solution to our debt issues.
A debt consolidation loan replaces several unsecured loans like credit card debts with one single loan so that instead of making many payments you are now able to make one lower payment towards your debts. This will help to immediately improve your credit score. However one of the considerations to qualifying for a debt consolidation loan is your ability to make the new payment regularly. So a stable source of income or employment is crucial. In most cases the lender will require you to provide some security like a car, house or a co-signor.
Click Here and Get More Tips for Your Credit Life Line!
Bankruptcy
If you don’t qualify for a debt consolidation loan then you might have to consider bankruptcy, under Chapter 13 or Chapter 7 depending on your circumstances.
Bankruptcy is a complete discharge of some types of debts. It means walking away from your debts including your home and other assets you may have accumulated. Although a bankruptcy is severe and it stays in your credit report for up to 10 years, lately it is becoming a convenient way for people to get out of their financial problems. Individuals who are struggling to meet their debt situation are declaring bankruptcy more and more as the credit crunch continues to bite.
It is still not inclusive as there are some types of debts like student loans and child support among others which are not included in a bankruptcy. Neither of these two options offer everything to everyone. It will all depend on each individuals financial problem.
Click Here and Get More Tips for Your Credit Life Line!
Therefore if you have to consider what is better bankruptcy or debt consolidation, we feel this is a serious decision to make which would require the consultation with a professional financial adviser to help you look at the options open to you to suit your specific need.
By: mariane
Article Directory: http://www.articledashboard.com
If you are struggling with debts and are wondering what is better bankruptcy or debt consolidation visit Debt Consolidation Program and read more on how to sort out your financial problem and have a peace of mind.
