Bankruptcy or debt consolidation – What is better?
Falling into a debt trap is very easy for most people who do not realize how financially weak they are getting on an almost daily basis. There are several solutions available to overcome debts that seem unmanageable. One of them is opting for a debt management plan – a plan that allows a borrower to enter into an informal kind of understanding with unsecured loan lenders to offer better monthly interest rates on the basis of what he can afford to pay.
Bankruptcy is a solution that comes to mind of most people when they are thinking of clearing debts that do not seem surmountable. What they do not realize is that there are other debt solutions like debt consolidation loans.
How does debt management plan help?
A debt management plan is an informal arrangement to make monthly repayments of debts by reducing the monthly interests to a level that is more affordable. The agreement is not lawfully binding and offers some relaxation in case there is any change in circumstances at a later date. The lenders too are under no obligation to accept a lowering in the amount of interest payment. The borrower, on the other hand is also in a better position to have his interest and other charges reduced or to even negotiate a freeze in the debt amount to prevent it from increasing.
A debt management can be negotiated by the borrower himself, by directly negotiating with the lenders though it would be in his best interest to get a debt management company to intercede on his behalf and take their advice. The debt management company will not only get you the best deal with their negotiation but will also be of any assistance to you during the plan period.
Inability in making timely repayments on the basis of the original agreement will display on your credit report and for the next six years will add on to the cost as well as make it difficult to acquire further credit.
Which is better: Debt management or bankruptcy?
There are some marked differences between the two. Though both have the capability of helping people having debts that have become unmanageable, depending on each person’s circumstances either debt management or bankruptcy would be the better choice.
Debt management would help people who are unable to repay their debts quickly, but could do so in the longer course of time and with smaller monthly repayments. On the other hand, bankruptcy would apply for people who cannot afford to repay their debts in full because they have no realistic means to do so.
In any event, the best way to consider the options for unmanageable debt is to consult an expert financial adviser.
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