Debt consolidation involves contacting a service that liaises with your creditors. They work on your behalf to alleviate harassing phone calls and reduce the interest rates and monthly payments of your unsecured financial obligations. Typically debt management only consolidates credit cards, department store and gas cards, and the like. Long-term, secured loans, such as car, home, recreation and luxury items, and property, are not included.
Your company charges a processing fee, which includes intermediary services between you and your creditors and all necessary paperwork. You will only have one payment, to the service, and generally you may arrange for it to be a direct debit from your bank account the same time each month. Although action of consolidating will reflect on your credit report, it remains confidential, and your employer or others will not be informed of your circumstances.
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Conversely, declaring bankruptcy is a matter of public record. It is a legal action that requires the representation of a bankruptcy lawyer, thus incurring legal fees from $160 to $1500 or higher, depending on the amount of paperwork involved. However, pre-bankruptcy creditors cannot claim any post-bankruptcy money you earn, you typically keep your home and vehicle, and debts other than child support, student loans and some taxes, are forgiven. The primary advantage of declaring this one is that it allows you to wipe out most of your money owing problems and "start fresh."
Chapter 13 bankruptcy, called "reorganization," permits retention of property, such as a home or vehicle. Instead of being forced to surrender your property, reorganization gives you 3-5 years to pay off your debts. Chapter 7, termed as a "straight bankruptcy," involves liquidating all assets except those exempt under state law.
Unfortunately, an action like this one remains on your credit report for as long as 7-10 years, generally making it difficult to purchase a new home or vehicle. You are also not permitted to file it again for six years.
Summarily, the former is a voluntary repayment plan you choose to participate in, that enables your creditors to recoup monies you owe them. Legal liability for your debts is yours, and you control how your credit is affected. The later is a more critical action, where the federal court determines your legal liability and responsibilities. Therefore, if at all possible, debt consolidation is absolutely preferable.
By the way, by researching and comparing the best debt consolidation companies in the market, you will be able to determine the one that meet your specific financial situation, plus the cheaper interest rates offered. Nonetheless, it is advisable going with a trusted and reputable debt counselor before making any decision, this way you will save time through specialized advise coming from a seasoned debt advisor and money by getting better results in a shorter span of time.
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