Debt Consolidation or Bankruptcy?

It’s a question that has stumped wise men (with overdrawn credit cards) for years. Do I file for bankruptcy, or do I get a debt consolidation loan and spend ten years paying off my debt?

The simple answer is, if you can do debt consolidation, do it.

Sure, bankruptcy means you don’t owe anything to anyone (well, sometimes it means you need to sell your assets - but more often than not you’re starting anew)- but it also means a big fat black mark on your record that may never go away.

Bankruptcy marks you as a bad risk for every potential lender. Mortgage lenders - credit card companies - employers – they all see that credit history and come to a similar decision.

Even worse, the current administration has chosen to pass laws that mean - if you go bankrupt owing money to a credit card company - they could take your family home. Please double check this and other changes in the law with a bankruptcy attorney.

Yes, that’s right, I understand the government has made it law that, unlike big businessmen who can go bankrupt every second year without penalty - normal people like you can have your family home taken from you just because you couldn’t keep up with your credit card payments.

Of course, the credit card companies were behind the bill, and spent millions on Congressmen and Senators to ensure it passed without too much debate - and millions of Americans who look at their debt and think - “Well, I can always go bankrupt” - have no idea that if they do - they might lose everything they have.

Which leaves us with the other option – debt consolidation.

Debt consolidation is when you gather all the debts you owe - pool them into one amount - and borrow that amount from a bank or other financial institution - to be repaid over a long period of time - at a set (and low) interest rate.

It could mean that everything you owe on your credit cards is suddenly paid off - and all you owe is one long-term debt to a stable - secure - eager to help you stay afloat bank.

Think about it – why carry too many credit card debts that all need to be repaid at high interest rates in the short term - when you can have one debt that doesn’t have to be completely repaid for years? It just makes sense.