Debt Consolidation and Bankruptcy

When faced with a crisis, it is easy to throw in the towel and run away. The true test of character comes when you withstand the hardship and seek to resolve the issues rather than taking an escapist approach. Similarly, mounting debt and other burdens may be sapping you mentally, but instead of opting for bankruptcy and trying to be escapist, you must look for other options that can get you out of the mess.

This is important because what appears as a solution to your problems may be worse than the problem, in this case filing for bankruptcy will come back to haunt you in the future through bad credit rating and the fact that no creditor will advance any loan for the next 2 years is another negative. Hence bankruptcy should be the very last option and you must actively look at everything else to arrive at a solution.

Debt Consolidation Agency

That solution could be in the form of a debt consolidation body that can help you decrease your burden and get you out of the bankruptcy mode. The agency will allot you a counselor who has many years of experience in dealing with creditors. He will first discuss with you and get an idea of your assets and liabilities apart from details of your occupation. You will be required to submit proofs to support these facts.

He will now suggest a program which would be tailored to take care of your debt and if suitable to you would set up a meeting with your creditors to work out the new repayment schedule. The debt consolidation person will be able to reduce the interest rate as well as the monthly payment through extending the payment tenure. In some cases, borrowers have benefited by up to 70%.

Debt Repayment

After getting the creditors sanction on the new repayment schedule, you will be required to adhere to the schedule. This is a function of the terms the counselor has been able to negotiate with the creditors. Sometimes you may be required to make an application for a loan and this would be used to clear the existing debt. In future, you only need to start repaying this loan. You may also get this facility from the agency itself and they would then start collecting this repayment on a monthly basis from you. Your single point of contact will henceforth be the agency. You must however take care that you do not default on any payment that is due every month.

As you can see, all is not lost and you need not consider bankruptcy when you have an option like debt consolidation at your behest. It will certainly help you come out of the problem and is a far better option than filing for bankruptcy.

What is Debt Consolidation

When one is in deep debt and the burden reaches a point of exasperation and tension, it is better to opt for an innovative financial instrument called debt consolidation. Very often the current loan is unstructured and involves high monthly payouts due to increased interest rates. With debt consolidation, the burden of two or more loans is merged into one single entity and that assumes the form of a personal debt. This form of consolidation typically results in a lower interest payment allowing you to save money on a monthly basis. The new structure also enforces discipline and a tight repayment schedule to enable you to settle the debt at the earliest.

You can connect into such a plan through an agency or through a classified consultant. Once you meet up with a qualified debt advisor, you will be able to arrive at a decision as to which is the best option for you. Under the debt consolidation plan, three options varying with the requirements of an individual exist – loan consolidation, loan management and the filing of bankruptcy.

Under the debt or loan management option, the consolidator will take on the burden from you and enter into a separate repayment arrangement with the lender based on their own credit rating. Typically, they already have existing ongoing relationships with these lenders like card companies, other collection agencies etc and are thus in a better position to negotiate terms. You benefit since the interest rates are always on the lower side as opposed to the one you are being levied and this results in significant monthly savings besides having to deal with only one creditor. Management of the debt is thus far simpler and tenable.

You need to be aware though that having entered into such an arrangement, you cannot operate any of your cards barring one for any exigencies. The positive feature is that you will not be troubled by the different creditors and need to deal with only one, making sure that you do not fall back on the repayment schedule agreed upon.

You need to read the fine print of the arrangement and make sure that the new debt tenure is not an extended one, as that will mean that you end up paying far more. Moreover, do not offer your house as collateral. It can be repossessed in the event of any default from your side.

The repayment schedules are normally agreed upon for tenure of 5 – 7 years. Unfortunately, even this schedule is not always maintained and adhered to due to changing economic conditions and bad after sales service.

You can look forward to a commission which would be approximately equal to the first monthly payment under the new plan. There is a component of administration fee that also needs to be paid. This could be a flat charge or a percentage.

To sum up, a loan consolidation plan works well for people struggling with interest rate payment of over 18% or are into the credit card trap.