Debt Relief or Bankruptcy – Whats The Best option?
If you are feeling the strain of heavy debt, it might be very tempting to think of yourself filing for bankruptcy. After all, with one tiny filing your debt problems could go away forever. Sure, you may have a bankruptcy on your credit, but that is really a small price to pay when you have the ability to get out of debt fast, isn't it?
If you are trying to figure out whether it is better to work your debt down with a debt relief company or file for bankruptcy, then here are some tips, provided by James Milne, a leading group of Aberdeen accountants you should consider.
First, the Good and the Bad of Bankruptcy
Filing for bankruptcy obviously has one huge benefit, that you will no longer owe anything to your creditors, as long as the bankruptcy is done right of course. You simply walk away from your financial worries, what could be easier than that?
When you have a debt settlement, you will still be responsible to pay a payment every month to the consolidation company, and you will still be in debt until the payments have been completed.
But when you go through a bankruptcy, you will automatically lower your credit score by at least 200-250 points, meaning that your odds of getting approved for a loan after a bankruptcy will decrease tremendously.
Sure, you might not feel like you need that credit now, but what if your car stops working tomorrow, what if you get sick or lose your home or need a major home repair? Can you really afford to have your credit score be even lower than what it is now??
On the other hand, when you decide to go through a debt consolidation, you will lose about 50 points off of your credit score, which is an impact but It is usually much easier to raise those 50 points than it is to raise your credit score another 200 points.
No matter which way you go, one thing you should remember is that future creditors will know that if you filed for bankruptcy, you walked away from a commitment to pay a debt, but if you used a debt consolidation agency you gradually worked that debt off.
The Good and the Bad About Debt Consolidation
Just like there are good and bad things about filing for bankruptcy, there are also pros and cons to debt consolidation. The main drawback when you consolidate your debt is that you will not actually get out of your payments. While you can walk away from your payments when you file for bankruptcy, you cannot do that with debt consolidation, which means it might be very hard to come up with the monthly payments to pay the debt consolidation company.
But then again, debt consolidation will help you to address child support and alimony debt while bankruptcy will not allow you to do so.
Remember, whenever you want to consolidate debt, you need to be sure that the company you are working with is one that you can trust. You will need a company that has reasonable fees and is willing to hold your hand throughout the entire repayment process.
Before you sign any paperwork with a debt relief company, you always want to be sure that it is a company that you are willing to work with and stick with throughout the whole debt repayment process.
A lot of debt relief companies speculate that their debt relief dropout rate is almost 50%, so you want to be sure if you start the commitment you are able and willing to see it through. Remember, if you drop out you will not only lose time and money but you will also not be able to settle any of your debts, leaving you right back where you started.
When choosing between debt relief and bankruptcy, debt relief might be the better option in the long run, but it will do nothing to get you out of debt right now. But when you choose bankruptcy, you will be able to walk away from your debt right now, but the drawback is that future creditors will know that you walked away from a debt, making them feel like they should not loan you any money.
Be sure of which way you want to go before you sign anything. If you start a debt relief program, always be sure that you are willing to stick with it and see it to the finish. But if you are looking to start the bankruptcy process, make sure that you are diligent about adding money regularly to your savings account so that you can reduce the need to rely on creditors in the future.