It is incredible how happily some financial advisors suggest their clients that they should file for bankruptcy to solve their debt payment problems. Though bankruptcy is and always will remain an alternative for addressing severe debt problems, it should also be the last option to consider because the consequences of filing for bankruptcy are so serious that it will not bring that much ease to your financial life even though your debt may be reduced dramatically.
Debt Negotiation
Before filling for bankruptcy you should undoubtedly try to negotiate with your creditors. Why? Simple, because bankruptcy implies that they will not get back their investment in full and that they will probably not even cover their costs. Thus, by proposing a debt negotiation you can obtain similar debt reduction results without having to file for bankruptcy thus ruining your credit score and history. You can even include as a clause of the agreement that your credit history should remain unaltered during the process and free from stains when the negotiation is completed.
Common negotiations may include interest only payments for a few months till an adverse financial situation is resolved, debt reductions, repayment terms extended, etc. If you are not comfortable with negotiation or you feel that you lack the skills to negotiate efficiently, there are many professional negotiators out there that will be able to aid you in the process. There are even non profit organizations that provide this kind of services without charge.
Debt Consolidation Loans and Debt Consolidation or Settlement
Often these two concepts are mixed up and people get confused. Debt consolidation can occur without a debt consolidation loan but since there is a type of loan used for consolidating debt, advisors prefer to talk about debt settlement or debt reduction.
Basically, debt settlement implies the unification of debt payments rather than the unification of debt that occurs with a debt consolidation loan. A company negotiates your debt with your creditors and handles the debt payments for you. Thus, you will just need to make a single and lump payment to this company every month and they will take care of your individual payments. Of course, this has a cost but it is usually compensated with the savings obtained during the negotiation phase.
A debt consolidation loan, on the other hand, is awarded to a debtor on condition that he or she cancels all outstanding debt but this new loan. This new loan implies lower monthly payments due to a lower interest rate or probably due to a longer repayment program. These lower monthly payments make debt more affordable and let debtors escape from the vicious circle of debt that otherwise buries people into more and more debt each month.
Bankruptcy Only as A Last Resort
Bankruptcy is, as explained above, a last resort. Do not let anyone tell you that the course of action is financial failure and that there are no other options. This is a decision that you, and you alone need to take. You may wonder how you can make such a decision and the answer is simple: Only when you have tried everything else and you feel that you can no longer make payments to your creditors without compromising your life and that of your family, you should consider bankruptcy as an option.
Kate Ross has a Master in Finance and has been a university teacher as well as a financial consultant for years. She specializes in Unsecured Loans and also in helping people to get approved for poor credit loans, home loans, guaranteed loans, bad credit auto loans, guaranteed credit cards among many other financial products. For further information, please visit http://www.speedybadcreditloans.com
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