Why Debt Consolidation is Better than Bankruptcy

Compare debt consolidation vs bankruptcy.When you find yourself with more debt than you can afford to repay, you may consider bankruptcy. However, although this choice can help you eliminate your debt quickly, it is not the only option available to people who are struggling.

Debt consolidation is an alternative that may be more beneficial for some families with overwhelming debt.

If you are considering either of these two options, review the pros and cons of each one before you make the decision.

But you don’t have to make the decision by yourself. In this blog post, we examine debt consolidation vs bankruptcy and why consolidating might be the better choice.

Understanding Bankruptcy

Bankruptcy is a legal process designed to protect a debtor who cannot pay all of his or her debts. In most cases, bankruptcy begins when the debtor files for protection in court.

Two primary types of bankruptcy are available to individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy requires the debtor to surrender any assets that are not protected by law to repay his or her debts. All of the remaining debts are discharged by the court. Chapter 13 bankruptcy, on the other hand, doesn’t require the debtor to surrender any property, but the debtor must instead repay everything he or she owes over a set period of time.


  • No more collections. Creditors cannot keep trying to collect from you during the bankruptcy.
  • You won’t lose everything. Even with Chapter 7 bankruptcy, you can usually keep your most important assets, such as your home and car.
  • May prevent embarrassment. If creditors file lawsuits against you, garnish your wages, repossess your property or try to foreclose on your home, you may suffer public humiliation. Bankruptcy can prevent creditors from taking these actions and even stop garnishments or foreclosures that are already in effect.


  • You may lose property. If you choose Chapter 7 bankruptcy, you will lose your non-exempt property.
  • Lower credit scores. Bankruptcy lowers your credit score and remains on your credit report for up to ten years. This can make it difficult to qualify for new credit.
  • Some debts don’t qualify. Some debts, such as federal student loans, cannot be discharged in bankruptcy.
  • You’re stuck with the stigma. You’ll have to live with the stigma associated with this solution.

How Debt Consolidation Compares

Now here’s why consolidating is a much better solution for most…

First, debt consolidation can be used to eliminate virtually all types of debt over time. Naturally, it lowers monthly payments. If you get a new loan, you will get lower-than-average interest rates. So consolidating your debts typically results in a lower monthly payment obligation. That, of course, is your first priority. You want monthly payments you know that you can handle.

Second, unlike other options, it won’t crush your credit. Consolidating your debt won’t hurt your credit score as much as bankruptcy will. However, keep in mind that this option is different than debt settlement, which may have a negative effect on your score. Your credit is something you must take into serious consideration when you compare bankruptcy vs debt consolidation.

Third, you’ll pay less interest overall. If your consolidation loan carries an interest rate that is lower than what you paid on your original debts, you will pay less interest overall.

Now, there are a few downsides to consolidating your debts.

For example, you can’t discharge all of your debts. Debt consolidation doesn’t allow you to discharge your responsibility for the debts you owe.

Another negative is that it may encourage more borrowing. With a lower monthly payment and no harm to your credit score, you may be tempted to borrow more money after you consolidate. But you must fight this temptation at all costs. In fact, keeping your urge-to-splurge in check is one of the most important parts of getting out of debt and staying out of it.

And you must fight this urge with all your mite. If you don’t, you’ll be right back to square one… knee deep in debt again.

Final Verdict of Debt Consolidation Versus Bankruptcy

As you can see, you can eliminate credit card debt without bankruptcy and without destroying your credit. Choosing the right path can be a challenge. In some cases, you may simply be unable to cover any monthly payment on your debts, and bankruptcy may be your only option. However, if you can afford a lower monthly payment and you don’t want to risk losing your property, debt consolidation is a better choice than declaring bankruptcy.

Not only does this method allow you to pay down your debts with a more affordable monthly obligation, it will also protect you from the credit problems that go along with going bankrupt. When consolidating your debts, you can get out of debt faster and start working toward a better financial future. It’s a big reason why so many people decide to go with this familiar solution.

Related Articles…

Increase your credit score quickly

Budgeting for those who’ve never done it

Your out-of-pocket expenses when consolidating