The Difference between Debt Consolidation and Bankruptcy
Unfortunately, millions of people experience a financial crisis. They are sometimes unable to pay their loan back and finally have to fill out forms of declaring bankruptcy. Debt consolidation is one beneficial way to avoid bankruptcy. Many have opted for it and have found themselves free of debts.
There are many reliable financial companies ready to do consolidation loans at the lowest interest rate. Hence, their clients are able to pay back the loan amount with ease. You can anytime consult such financial firms as Point Break Financial to consolidate your various loan amounts into one. Thus, you need to pay only one loan amount instead of paying multiples of them as done earlier. It is a safer way to deal with debts and prevent bankruptcy.
Bankruptcy is a solution to end your debts and make a fresh start. However, it has its disadvantages as well which makes it the last choice of solution for any person submerged in loan payments.
- It can be a secured or unsecured loan. A secured loan is preferable as the interest is highly reduced, thus monthly EMI can be easily paid without stress.
- It helps to protect your credit score and reputation. Your credit history remains good which will be beneficial in gaining loan amount in the future.
- It simplifies the process of loan payment as you need to pay only one creditor and not many of them from whom you have earlier borrowed a loan. All the loan amount is clustered into one payable loan amount.
- You won’t remain confused about loan payment dates anymore. Many times people forget their loan payment day because of multiple loan payments to be made in a month. That results in sometimes missing the payments and it marks a dent in their credit score. Such circumstances can be avoided by accumulating all in one and paying monthly only one loan.
- Similar to all loan payments there are few disadvantages to be faced if you default in paying back the consolidation loan. You may need to give up any asset if any default happens like not paying the loan due on time. However, it has proved to be beneficial and convenient for many people. They pay less loan amount than before so able to save money. They can get free from financial problems fast, thus able to lead stress-free life.
- It is beneficial to end the contract with your creditors while unable to pay the loan amount back.
- Two types of bankruptcy are there that is Chapter 7 and Chapter 13. In the Chapter 7 kind of bankruptcy, there may need to sell out any of your assets but in Chapter 13 you get few years to settle your loan payments. Sometimes you need to pay less to your creditors than the actual amount.
- The pros are your creditors won’t stress you anymore and can make a fresh start. The repayment plan is supervised by the court, thus no worries of creditors troubling you anymore. By applying for Chapter 7 you can give up your vehicles or any asset bought through EMIs.
The only disadvantage is that your credit score will be spoilt. Hence, it is best to opt for a consolidation loan if possible.