Debt Consolidation or Bankruptcy?
This is a question that has puzzled many wise people (with excessive credit limits) for generations. 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 the latter, do it.
Of course, bankruptcy means you don’t owe anyone anything (well, sometimes that means you need to sell your assets, but more often than not your initial limit), but it also means big, fat black marks on your notes that won’t never left (apart from what some say about seven years of being a magic slate cleaner).
Bankruptcy marks you as a bad risk for every potential lender. Mortgage lenders, credit card companies, their employers all look at the credit history and get the same wrinkled eyebrows.
And worse, the Bush administration has chosen to pass a law that means, now, if you go bankrupt because of money to the credit card company, they can bring your family home.
Yes, that’s right, the government has made a law that, unlike big businessmen who can go bankrupt every second year without penalties, normal people like you can get your family home taken away from you just because you can’t keep up with your MBNA payments.
Of course, credit card companies are behind bills, and spend millions of dollars on members of Congress and Senators to make sure they pass without too much debate, and the millions of Americans who see their debt and think, Well, I can always go bankrupt, not having the idea that if they do, they will really lose everything they have.
Which leaves us with other debt consolidation options.
Debt consolidation is when you collect all the debts that you have, put them together in one amount, and borrow that amount from a bank or other financial institution, to be paid off over a long period of time, at a fixed (and low) interest rate.
This means that everything you owe to Sears and Best Buy and MBNA and Citicard suddenly pays off, and all you owe is a long-term debt to be stable, secure, eager to help you stay in the bank.
Think about that, why bring six debts that must all be paid off in the short run, when you can have one debt that doesn’t have to be paid off for years? Make sense.