There is always an ongoing debate as to which approach is better at tackling the accumulated debts: debt consolidation or declaration of bankruptcy? Though both have their own advantages and disadvantages, it primarily depends on the person’s choice. Still, working rationally, let us examine their respective merits and demerits.

Debt consolidation will save you from the stigma of bankruptcy. It is best used when one really cares for his social reputation and at the same time, has the capacity to squeeze out money for loan repayment, albeit with some difficulty. It will be easy for you to make payment once a month and let all the documentation, negotiations and communication with the creditors being done by the debt consolidation company. On your part, you might have to follow a tight financial planning schedule. The will be restrictions on the use of credit cards and taking of further loans. However, the downside of this choice is that you still have to make monthly payment from your incomes, though of lesser amounts. Further, the debt consolidation services are offered only for the unsecured loans, like the payday loans and not for the secured loans like home mortgages, auto loans, etc. So, you might still be required to pay separately for them.

Bankruptcy, on the other hand, can provide you respite from all your debt woes in one go. That’s its biggest advantage. It allows you get the creditors off your shoulders and make a fresh beginning. If you are really fed up with the debts and have learnt your lessons hard way, then you might decide to put an end to the misery once and for all. However, the new bankruptcy provisions do not encourage filing under Chapter 7 code till some debts have already been paid, mandatory counseling has been done and other options exhausted. Further, you will have to bear the stigma for a long time to come. The lenders may not be willing to lend you easily after that. You shall be mentally prepared to face the same.

So, you shall make a well considered choice between debt consolidation and bankruptcy to manage your debts. Bankruptcy can provide relief on a personal level though it has a bearing on social and future business or work prospects. Debt consolidation will require continued financial discipline and committed loan repayments. It can remain confidential and may not affect the credit scores as badly as bankruptcy.