If you are trying to navigate your way through overwhelming debt, you know how stressful it can be. You are not alone in this feeling; many Americans are dealing with debt. In 2017, the amount of debt in the U.S. climbed to a new high at $13 trillion. That amount was $280 billion higher than the previous record high back in 2008.
No matter the reason why you accumulated debt, the good news is there are ways to help you. Two methods that can assist you include filing for bankruptcy and debt consolidation. People have been using both to ease or eliminate debt from their life. Each are unique so your unique situation will determine which option would be best to pursue.
Many people choose debt consolidation because it combines all your debts into a single payment. Consolidating all your debts into one place will usually come with a lower interest rate and can make for a lower payment than you are currently making on all your debts separately. Debts you can consolidate into one new loan can include:
- Credit cards
- Car loans
- Medical bills
- Personal loans
- Utility bills
- Unpaid child support
- Payday loans
Debt consolidation is not the same as debt settlement. With debt settlement, there is a negotiation with creditors to pay off debt in one lump sum payment. Often, there is also a fee associated with debt settlement. With debt consolidation, you get a loan through a bank or local credit union and may only have a minimal negative effect on your credit score.
However, debt consolidation is not always the best option. You will still need to make a payment that you may not be able to afford. Also, your credit lines may remain open after consolidation. If you use them to get into high debt again, your credit score could be negatively impacted.
Bankruptcy can discharge your debts and immediately stop any creditors from trying to collect on those debts. Here are some advantages to filing for bankruptcy:
- When your debt is discharged, you start over with a clean slate
- No calls from creditors
- Relief from high debt you are unable to pay
You are unable to discharge tax debts or student loans in bankruptcy. You should expect your credit score to decrease and you will not have access to credit card accounts any longer.
Which option is right for you? Both have their advantages, but the disadvantages should also be weighed. If you currently have significant damage to your credit based on missed payments, then bankruptcy may be the best option for you. Consider speaking to a debt management professional to get all your questions answered and discuss what option could be best for you.