Debt consolidation vs bankruptcy: which is the better choice for you? It is often difficult to decide whether to file for bankruptcy or go for debt consolidation. While debt consolidation can ease up your monthly payments and ease out tracking expenses, bankruptcy can get you out of the debt cycle altogether.
If you are wondering about the pros and cons of debt consolidation vs bankruptcy in Canada, it is essential to understand their nuances. This article will walk you down both these options and help you arrive at a decision. If you are looking for advice on debt consolidation in Alberta, check out this page.
Debt Consolidation: Meaning and How It Works?
Through debt consolidation, multiple debts are merged into a single, larger liability, such as a loan, with more favorable repayment terms, such as a reduced interest rate, a lower monthly payment, or both. College tuition, consumer debt, and other liabilities can all be addressed with debt consolidation.
Once the lender’s old bills are paid off with all the fresh bank loans, the customer will only have to make one monthly payment on the new loan.
While debt consolidation might reduce a borrower’s monthly payment, it extends the loan length of the aggregated loans. Consolidating loans also simplifies payments and makes financial management easier, especially for borrowers who have trouble managing their finances.
Debt consolidation experts frequently promote this method as a straightforward way to save money while still protecting your credit rating. The following are some of the pros of utilizing debt consolidation to help manage your debt.
Debt consolidation, unlike bankruptcy, is not a public record. Bankruptcy can be discovered by anyone who tries hard enough, including your present or future employer. Bankruptcy records can be seen online through membership service or in person at any federal bankruptcy courthouse.
However, if you currently owe a large sum of money or are behind on payments, you may be unable to utilize your credit cards or obtain new credit. Furthermore, continuing to utilize credit cards may negate the debt consolidation goal.
Debt Consolidation makes tracking payments easier. You would not have to worry about missing any installments as there would only be one loan that you’d need to pay off. This also makes financial planning a lot easier.
Before taking out a loan, you should think about the disadvantages of debt consolidation.
You Might Have To Pay A Higher Rate
Your debt consolidation loan may have a higher interest rate than your present debt payments. This might be due to many factors, including your current credit score.
You’ll Be Penalized In Case Of Non-payments
If you skip one of your monthly loan installments, you’ll almost certainly be charged a late fee. In addition, some lenders will charge you a returned payment fee if a payment is rejected due to insufficient funds.
Bankruptcy: Definition and How Does It Work?
Bankruptcy is an authorized process that involves an individual or company that is incapable of paying its debts.
The bankruptcy procedure starts with a request submitted by the borrower or on behalf of creditors. The debtor’s assets are all measured and analyzed, and the assets may be utilized to pay off some of the debt.
Bankruptcy may result in full or partial debt relief, as well as the cessation of all collection efforts by creditors. The debtor is required by bankruptcy law to disclose all assets, obligations, and other financial information.
Either the debtor must relinquish non-exempt resources for dissolution and distribution to creditors or must devise and implement a reorganization and debt repayment plan that is more manageable.
Here are some of the advantages of bankruptcy that will help you decide whether you should file for it or not.
You Might Be Free Of Debt In Just One Year
You will typically be bankrupt for a year, after which you will be effectively debt-free and able to start over with your money. This will also enhance your emotional and physical health because you won’t have to worry about repaying your obligations.
You Simply Cannot Give Up Everything You Own
Many individuals believe that they must give up everything they have if they file for bankruptcy, but this is not the case. Only major assets, such as your home or a high-value automobile, will be used to pay off your obligations. You can still retain other essential assets and make a fresh start once the process is over.
The Drawbacks of Bankruptcy
There are certain drawbacks to bankruptcy as well, including the following:
Frozen Bank Account
After your bankruptcy is approved, your bank accounts may be frozen to allow the Official Receiver to examine your funds. Thus, you could face difficulties carrying out any sort of transaction, even though personal in nature.
Difficult To Find A New Job
Some industries won’t hire you if you’re bankrupt. So if you are looking into working as a financial advisor, financial worker, or anything on a professional level, bankruptcy can hamper your career record. Employers see bankruptcy as a sign of poor money management.
If You Have Discretionary Money, It Is Essential To Make Monthly Payments
Your Official Receiver will examine your accounts. If you have any leftover money after paying all of your bills, it will need to be deposited into an Income Payment Agreement (IPA). This may endure for up to three years.
Endnote: Bankruptcy vs Debt Consolidation
Are you deciding whether debt consolidation or bankruptcy is the right choice for you?
If you’re having trouble managing your bills for the first time, a debt consolidation loan should be your first choice.
This is a quick and straightforward solution that will not significantly impact your credit score or force you to make major lifestyle changes. On the other hand, if your credit has already been severely harmed and you have tried a range of different measures to regain control of your debt with little success, bankruptcy may be the most realistic option for you. If you are unsure about the ideal option for you, consider consulting a financial professional. They will help you make the right choices to get out of the debt trap.