When facing issues with debts, there are a couple of ways to go about fixing it, two of which being more popular: bankruptcy and debt consolidation. Much like other decisions made in life, each one has its own benefits and consequences. However, filing bankruptcy is usually the better route to take when deciding between the two.
Unlike bankruptcy, debt consolidation does not completely discharge your debts. Instead, your credit counselor will need to try and negotiate with creditors to create affordable interest rates for you, lowered monthly payments, or help you obtain a larger loan to pay off credit debts. This is problematic because it does not wipe out your debts, but practically creates more being as you may need to take out a loan. Another pitfall of debt consolidation is the fact that not all creditors will want to make a deal with a credit counselor; nor do they have to be dealt with all at once. If your credit counselor so chooses, they can deal with your creditors one at a time which will both prolong the process and make you susceptible to problems with your other creditors who have yet to be dealt with. One more thing to keep in mind about debt consolidation is that credit counselors usually only help out with unsecured debts (credit cards, medical bills, etc.), not secured debts (mortgages, vehicle loans, etc.). Bankruptcy, however, does deal with both.
As you may have guessed after reading the previous paragraph, filing bankruptcy is most likely the best option to go with. If you were to file under Chapter 7, a large portion of unsecured debts will be discharged and unlike debt consolidation, all creditors must oblige by it. They cannot choose whether to be a part of the discharged debts or not. If you were to go the route of Chapter 13, you will set up an affordable payment plan with creditors to pay off debts with the additional benefit of protecting your secured assets from being repossessed (unlike in debt consolidation). One final thing to keep in mind is that debt consolidation has a tendency to cost more than bankruptcy, as well as have fewer benefits. Although every person’s situation is different and their solutions to debt may vary, filing bankruptcy should be considered before going through with debt consolidation.