Bankruptcy or Debt Consolidation: What is the Best Solution?

Featured guest post by Australian writer, Allan Jones: 
Allan has been working in the debt consolidation industry for several years, specializing in debt consolidation loans and debt agreement. When he is not working, Allan enjoys blogging about personal finance at "The Australian Lending Centre" as well as contributing to other forums.


Debt is not harmful but if there is too much of it, it can become a detriment to peaceful and productive living. Incurring too much debt is troublesome but interestingly, more and more people fall to the problem. There is nothing wrong with borrowing money but only if you can actually repay it without affecting your personal finances too much.

If debt has piled up to uncontrollable levels, there can be two options to take. You can file for bankruptcy or go for debt consolidation. Which of the two is better in helping you emerge out from a debt-troubled life?

Filing bankruptcy

Desperate individuals who are in serious debt troubles should look at bankruptcy as a last option. It is tempting to file for bankruptcy to make sure collections will cease and creditors may stop from pursuing you. However, it has the most serious implications and consequences. Bankruptcy is not an instant solution to credit and debt problems.

First, it will not guarantee that you will be able to fully get rid of any obligation to pay bills and debts. If this is the case, countless individuals will surely live irresponsibly and only count on bankruptcy for protection. Second, bankruptcy filing maybe rejected. The authorities will have to assess your situation and determine if you are just using it as a scheme to run away from responsibilities.

The major setback is that bankruptcy will totally erode your credit score. If you intend to keep a good credit standing, getting bankrupt should be ruled out. Any bankruptcy filing will remain in an individual’s record for about 10 years or more. Bad debt, in comparison, only stays on your credit history for just seven years.

Debt consolidation

Debt consolidation can be considered if your current regular income exceeds your necessary and regular expenses. That is because debt consolidation is paying all your debts through a single major loan. You will still pay your financial obligations using your income.

There are several options for consolidating debts. First, you may obtain a single debt consolidation loan with lower interest rates. It is like transferring your outstanding debts into a single loan. This can bring about a huge positive impact to your credit score. Thus, it can be inferred that this strategy is a way to boost credit history.

Second, you may pay off some or all of your debts by using the balance transfer feature of your credit card. Be sure to take advantage of 0% or lower interest rate balance transfer. The strategy can also help clean up your credit history.

After debt consolidation is done, the war against debt is still not over. You have to try your best to repay the debts incurred for consolidating. The advantage is that you may save a lot on costs and interest payments. The setback is that you still have to watch your finances to make sure you do not make late payments or miss any payment at all.