Debt consolidation is an act of combining multiple loans into a single loan by means of borrowing a new loan at a lower interest rate. Bankruptcy, on the other hand, involves clearing one’s debts in case the borrower cannot repay them.
Debt consolidation has gained increasing popularity as a method of repaying one’s debts. Borrowers enjoy the benefit of servicing one
loan at a fixed or lower interest rate. One option is to combine multiple unsecured debts into one unsecured loan. Another more common scenario involves borrowing a single secured loan at a lower interest rate and against collateral.
Debt consolidation is a preferred alternative when it comes to the repayment of credit card debt. Typically, this type of debt carries considerable interest rate in comparison to other loans. Debtors who own property (house or vehicle) can borrow a secured loan for less interest. However, if you have bad credit history, you may not qualify for consolidation loan.
Even if all of that sounds a bit dispiriting, debt consolidation may be a preferred alternative to bankruptcy. Some people think that when they file a bankruptcy, their life will simply start anew. When you go bankrupt, your excess income and non-essential assets will go toward paying off your debt to creditors. If you own a house that is not protected under the Exemption Act, you may need to sell it in order to repay your loan. Certain items are not treated as assets and you are not required to sell them. You will keep all pieces of equipment that you need for work, together with any household items that your family needs. The Exemption Act stipulates that you keep ordinary clothing, food, fuel, pieces of furniture, and implements and tools that you need to practice your profession (or keep your business running).
Bankruptcy is among the top five life-changing events and comes with multiple negative consequences. Apart from the negative impact on you credit score, you have to stop using credit cards. Moreover, even when the bankruptcy period is over and the stain is cleared from your credit report, potential borrowers may still ask whether you have filed for bankruptcy. If you’ve ran out of other options, remember that many hardworking and honest people go bankrupt. Events such as unsuccessful business venture, divorce, long-term illness, and family emergencies may force one to file bankruptcy. You are definitely not alone: more than 100.000 Canadians file bankruptcy proposals or go bankrupt a year. Moreover, bankruptcy will not affect your spouse’s credit record. If your partner is not responsible for your debt in any way, he or she will be able to obtain credit.