Mar16
Making the Choice between Bankruptcy and Credit Card Consolidation
With the economy and credit crisis taking its toll on countless Americans, many people have had to make the hard decision to either file bankruptcy or enter into a credit card consolidation program. If you are on the receiving end of finances that have spun out of control, you may have also considered either bankruptcy or debt consolidation.
The question is: which one is right for you?
The deciding factor for most individuals is the impact these decisions will have on their credit score. In particular, they want to know which move will cause the least amount of damage to their credit.
Debt Consolidation Programs
Let’s first take a look at debt consolidation. A debt consolidation program is generally reserved for individuals who are already behind on their credit card payments. Although the process of debt consolidation does lower one’s credit, the impact of paying off bills also works to raise their credit score back up again.
However, it must be understood that, during a debt consolidation program, that the debt will be marked “satisfied” or “paid in full;” otherwise, the debt consolidation will likely have a negative impact on the individual’s credit score.
Bankruptcy
The other alternative to debt consolidation is usually bankruptcy, which generally carries with a negative connotation; and rightly so. Bankruptcy can lower one’s credit score up to 250 points, and bankruptcy can stay on an individual’s credit score for up to ten years.
Keep in mind, also, that not everyone will qualify for bankruptcy, and not everyone will qualify for Chapter 7, which is the total liquidation of all debts (also called straight bankruptcy). Instead, some individuals may qualify for Chapter 13, which essentially means that the individual must repay the debt.
Chapter 13, although it doesn’t provide for the total liquidation that Chapter 7 does, allows the debtors to keep their property and pay their debts over a certain period of time; usually three to five years.
In particular, Chapter 13 allows individuals to save their homes from foreclosure.
So, the question of whether debt consolidation is better than bankruptcy, or vice versa, will depend largely on the individual’s financial circumstances and needs.
