Brenner Spiller & Archer

Debt Negotiation vs. Bankruptcy: Understanding Your Options

Debt is an unfortunate fact of life for many people. Millions of families across the United States find themselves living paycheck to paycheck, just barely holding on. The slightest emergency can make a difficult financial situation worse. Fortunately, there are many options for those in debt that can be of some relief.  Debt consolidation is a popular option among individuals who feel like they could make their payments, but find themselves overwhelmed. Consolidating debt is usually as simple as taking out a loan and paying off existing debts, thereby moving all debt into one monthly payment. Though it’s simple in principle, it’s not a perfect fit for everyone.

Pros of Debt Consolidation

  • One Easy Payment

Many individuals who choose debt consolidation do it for the peace of mind. By moving all their debts to one place, there’s simply less to keep track of.

  • Prevent a Damaged Credit Rating

A big fear for those who fall behind in their payments or worse, miss payments altogether, is the fear of a damaged credit rating. But taking out a loan for debt consolidation often appears on a credit report as just that – a loan. By keeping up with the payments of the consolidation loan, the chances of a damaged credit rating are significantly reduced.

  • Save Money

This advantage is mostly based on the math you put into your current situation, but in most cases, debt consolidation can save you money. By having one monthly payment and one interest rate, you may be able to pay off all the debt with less interest over time as opposed to only making minimum payments on multiple debts with varying interest rates.

  • You’ll Still Have Credit

If your debt consolidation loan is used to pay off credit cards, those credit cards can still remain open. Having cleared that debt allows you to use that credit if an emergency comes up, rather than having to dip into your savings.

Cons of Debt Consolidation

  • More Expensive

It should be noted that debt consolidation, at the end of the day, is still a loan. It will have its own interest rate and its own costs. It’s very important to do the math carefully. While a consolidation loan can make debt management easier, it can cost you more in the long run if not paid in full quickly.

  • You May Not Qualify

You generally have two options when it comes to this kind of loan: secured and unsecured. If your credit is poor, you may not qualify for an unsecured loan. Being turned down for the unsecured loan could negatively affect your credit score.

  • You Could Lose More Than You Gain

On the other hand, using a secured loan means using your personal property like your house or car as collateral for your loan. In this case, defaulting on your loan could cost you your personal property. A lender would have every right to take whatever property you used to secure the loan.

This article should not be taken as legal advice. If you’re considering bankruptcy or another legal debt relief option, you need to consult an attorney for guidance. If you’re in New Jersey and seeking legal assistance, we can help you.

Brenner Spiller & Archer is a New Jersey law firm that is dedicated to helping families find relief from the burden of debt and other financial woes. For more than 35 years, our bankruptcy lawyers have provided effective guidance on all debt relief matters to clients throughout Central and South Jersey.

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