Despite Australia seemingly missing the worst of the Global Financial Crisis, there is no question that these are difficult economic times. To many people, it is a struggle just to pay the bills each month.  Other people are in an even more difficult situation and, with each passing day, they are falling even further behind.  What do they do?

Debt consolidation and bankruptcy are two options available for those who are deeply in debt.  However, is one option better than the other?  Which option is right for you?

Debt Consolidation

Debt consolidation is a tactic where a debtor takes out one loan in order to pay off many other smaller loans. This might be a good option and there are some very good reasons for doing this.

• Lower Interest Rate

It is possible to secure a new loan with a lower interest rate. This could save money on interest payments.

• Lower monthly payments

With a lower interest rate, it is possible to lower the total required monthly loan payment.

• Pay down the debt faster

With a lower monthly payment, the money saved could be used to pay down the                  debt earlier.

• Save on late fees

Since only one check is written each month instead of many, it is possible to manage your money better.  The chances of forgetting to mail bills are less and there will be smaller chance of being subjected to expensive late fees.

While there are many benefits associated with debt consolidation, there are also some downfalls attached to it also.

• The loan may require collateral

In order to secure the loan, something of value may be required in order to obtain it.  If this is a house, this may make it more difficult if you plan to sell.

• Debt consolidation loans may be difficult to get approved

If your debt is high, and it probably is, along with a marginal credit score, it may be hard to get your loan approved.

• There may be a fee included in the consolidation loan

This may not be a free pass and many companies may build a costly fee into the loan.

Bankruptcy

There are many negative connotations associated with declaring bankruptcy but, for someone who is hopelessly in debt; this may be their only option.  What can bankruptcy do for you?

• It eliminates debt

By filing for bankruptcy, either Chapter 7 or 13, most debts will be eliminated.

• Creditors will stop calling

By law, creditors must stop all collection activities against a debtor once bankruptcy has been filed.

Bankruptcy may look attractive on the surface but, before following through, it is wise to look at the disadvantages that are involved.

• It affects your credit rating

Since a bankruptcy remains on your credit report for ten years, it will have an adverse affect on your credit rating.

• Acquiring new credit may be difficult

Depending on the lender, acquiring credit after a bankruptcy may not be easy.

Where to Turn

Since each financial situation is different, it is necessary to analyze each situation separately.  Locate a credible, experienced, and competent credit counselor to help you. They will be unbiased and will offer you an objective opinion. Credit advisors will also be able to offer advice on both debt consolidation and bankruptcy but, ultimately, the decision is yours to make.

The important thing here to remember is to not give up and to be proactive.  Work to resolve your financial troubles because there are options available that can help you.

Photo by Daniel Y. Go

Related posts:

1. 10 Steps To Avoid Bankruptcy
2. The Dark Side of Debt Consolidation
3. How NOT To Get Screwed on a Debt Consolidation Loan
4. Debt Consolidation Services: What You Need To Know
5. Is Credit Card Debt Consolidation the Right Move?