If you’re juggling debt, you may be weighing your options when it comes to debt consolidation or bankruptcy. Before you make a final decision between either of the two, it is critical that you understand what the differences are. You also must know what the advantages and disadvantages are of using a debt consolidation company, such as Symple Lending, and filing for bankruptcy.
All About Debt Consolidation
When you opt-in for debt consolidation, you are making the choice to pay off multiple debts from multiple lenders using a single loan. Debt consolidation loans are considered personal loans and don’t require you to put up any collateral. Debt consolidation loans come with a new fixed payment and fixed interest rate. Overall, you’d be saving money by making lower payments each month.
Debt consolidation can be in the form of any of the following:
- Secured personal loan: Secured loans are secured with collateral. The collateral can be savings account balances or something similar. You may benefit from a lower interest rate on a secured loan vs an unsecured loan.
- Balance transfer credit card: This is a great solution for those looking to consolidate a lot of debt from multiple credit cards. You can transfer the debt from your existing cards to a balance transfer credit card at a lower rate.
- Home equity loan: You may qualify for a home equity loan if you own a mortgage. This can then be used to reduce your debt. However, this type of loan will put your home at risk if you ever begin having trouble paying your loan.
Debt consolidation loans are best for:
- People who are capable of paying back their debts
- Individuals who have multiple credit cards with debt
- Individuals who have good to excellent credit
- Borrowers who are disciplined enough to make consistent monthly payments
Bankruptcy
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a type of bankruptcy that wipes your debt clean, if, of course, you have no assets.
This is a good solution for:
- People who can successfully pass the means test
- Those who have no assets to protect
- Those who are extremely behind in their debt
- Those who have debt mainly from, dischargeable debts including medical bills, credit cards, etc. Nondischargeable debts include tax debts, past-due child support, and alimony debts. These cannot be discharged through bankruptcy.
Chapter 13 Bankruptcy
The goal of Chapter 13 bankruptcy is to restructure your debt and get it paid off within three to five years on a payment plan. While this reduces your overall debt, you have the ability to hang on to your assets. Unfortunately, chapter 13 bankruptcy remains on your credit report for seven years.
Chapter 13 bankruptcy may be suitable for:
- Individuals who can afford to pay their debt back within three to five years
- People who have assets that they’d like to keep protected
- Those who do not qualify for Chapter 7
- Those who have debt that doesn’t exceed certain limits
If you’d like more information, feel free to reach out to the experts at Symple Lending.