Which Is Better Debt Consolidation Or Chapter 13 – Almost anyone who has trouble paying off their debts and is thinking about filing for bankruptcy will find notices or incentives for what is called debt consolidation. In this article, we’ll go over the differences between debt consolidation and bankruptcy and help you decide which one is best for you.
The term debt consolidation refers to the process of taking all your debts and merging them into one large debt. There are many methods of debt consolidation, and some are more beneficial than others. For example, some debt consolidation methods combine the credit card debt and payments on those cards into one monthly payment.
Which Is Better Debt Consolidation Or Chapter 13
So, for example, if you owe $ 2,000, $ 3,000, and $ 1,000 on three different credit cards and you pay $ 50 for each debt, a simple debt consolidation will merge those three credit card debts into one $ 6,000 debt. The loan amount in dollars does not change, but your payments must be at least lower each month. The advantage of this type of debt consolidation is that instead of trying to make three separate payments on three different days each month, you will have the advantage of making one payment at the same time each month.
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This type of debt consolidation is usually accomplished by transferring one or more credit cards or personal loans. Balance transfers often involve fees and advertise interest rates that often increase significantly if the balance is not paid at the end of the sales period. As a result, this type of debt consolidation only makes sense if you are charged a low interest rate for the remainder of each repayment period.
Unlike credit card balance transfers, consolidation loans are loans designed specifically for personal debt consolidation. Most companies that offer consolidation loans do so as long as the loan is secured by your home or other valuable property.
Some lenders require you to agree to pay a much higher interest rate on a debt consolidation loan than on credit cards. In fact, some debt consolidation loan companies advertise interest rates of up to 400% on consolidation loans.
Consolidating your debts with a debt consolidation loan can be a great way to get out of debt, but only if you are sure that new loan repayments make sense and are within your budget.
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One of the first things many consumers consider when deciding whether to use a debt consolidation program or file for bankruptcy is the impact on their credit report. As discussed earlier in this article, there are ways to consolidate your debt that won’t negatively affect your credit report and can actually increase your credit score slightly by reducing the number of accounts you open.
However, many people seeking debt consolidation do not get enough relief from consolidating their debts. As a result, in order to consolidate their debts, they need a type of debt consolidation that reduces the interest paid on the loan and the amount of the loan. This type of debt consolidation, usually done through a debt management plan, will initially negatively affect your creditworthiness as your accounts will be closed under the plan.
Filing for bankruptcy is a difficult decision and should only be made by those who are unable to pay off their debts. While the fact that you have filed for bankruptcy will be recorded on your credit report for up to ten years, most consumers can rebuild their credit and qualify for a new car or mortgage loan within a few years after filing for bankruptcy.
Since a balance transfer or consolidation loan quickly pays off all existing creditors, there are disadvantages with debt management plans. First, almost all debt consolidation companies charge a fee for their services that must be paid along with the total payment. Second, none of your creditors are required to agree to participate in the debt consolidation process. As a result, you can go several months without paying your creditors only to be informed that one or more of them have not agreed to participate in the consolidation of your debts.
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Finally, even if all your creditors agree to include their debts in debt consolidation, this will not stop any of them from suing you or seizing your earnings if they are already suing you while you are in the debt consolidation process. .
Most people who consider filing for any type of bankruptcy rather than seeking debt consolidation are often opposed to Chapters 7 and 13. A Chapter 7 bankruptcy is a type of consumer credit that is legally available to people who are unable to pay their debts. A Chapter 7 bankruptcy frees your debts without having to pay off any of them to forgo your outstanding assets. But because of the free exemption for many consumers in Chapter 7 bankruptcy, most people are not required to give up any of their assets.
Chapter 7 bankruptcy is nothing more than debt consolidation by eliminating unpaid debts, but it is the worst type of bankruptcy you can file. In fact, most people who have less than $ 10,000 in assets, own a home, and earn less than $ 50,000 can file their own Chapter 7 for bankruptcy. Something that can help if you qualify.
Another benefit of filing for Chapter 7 bankruptcy with debt consolidation is the automatic hold which protects you in the event of bankruptcy. The automatic suspension takes effect when you file for bankruptcy and prevents creditors from harassing or suing you to recover their debt. The downside to Chapter 7 bankruptcy, like other forms of debt consolidation, is that it will initially negatively affect your creditworthiness, although rebuilding your credit after bankruptcy can be achieved within a few years.
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Chapter 13 bankruptcy is another type of debt relief available to people who are unable to pay off their debts. A Chapter 13 bankruptcy restructures your debt into one low monthly payment similar to a debt consolidation program, so you can only pay off as much as you can in 5 years. This is debt consolidation, but without having to pay off all your debts. In addition, as in Chapter 7, filing for Chapter 13 bankruptcy provides an automatic hold and results in the entry of a dismissal order.
The advantage of a Chapter 13 bankruptcy over a Chapter 7 bankruptcy is that you do not have to surrender any of your assets and it is available to all clients regardless of their assets or income. The downside to Chapter 13 bankruptcy is that it is often more expensive and difficult than Chapter 7. In fact, many people who file for Chapter 13 bankruptcy are better off enlisting the help of an experienced lawyer before doing so.
In addition, the time it takes to pay your Chapter 13 debts can take three to five years. During this period, you will not be able to get a new loan without the prior approval of the credit court.
Whether you are considering debt consolidation or bankruptcy, the main desire of anyone looking to get out of debt is getting out of debt. Both debt consolidation and bankruptcy offer a way to do this, but only bankruptcy guarantees that you will be (mostly) debt free when the process is completed. On the other hand, debt consolidation, if tailored to your specific situation, can be less binding than a declaration of bankruptcy and provide sufficient relief to deal with temporary or temporary defaults.
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Ultimately, deciding which one is best for you depends on your current circumstances and your ability to pay your bills now and in the future. The less likely it is to improve in the near future, the more likely it is that bankruptcy is the only real help available to you.
If you are considering filing for bankruptcy or joining a debt consolidation program, you may qualify for free or low-cost credit counseling through one or more local nonprofit credit counseling agencies. In large cities, many legal aid centers also provide access to free debt counseling for low-income families and seniors.
If you need help getting free or low-cost credit advice in your area or want to invest your money for free, we can help. is a non-profit award sponsored by the US government, former Google CEO Eric Schmidt, and other private organizations. We’ve helped our users eliminate over $ 100,000,000
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