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Myth #3: Debt consolidation is always a better option than filing for bankruptcy
Many experts say that it’s always better to do debt consolidation than to file for bankruptcy. But this is also a myth. If you need to borrow a really huge amount of money, you should first sit down and determine whether or not you will be able to handle the monthly payments the loan will require. If you don’t feel you will be able to do this then bankruptcy might be a better option. A chapter 7 bankruptcy, which is by far the most popular, can get all or most of your unsecured debts discharged. A bankruptcy will stay on your credit report for either seven or 10 years (depending on the credit bureau) and will probably drop your credit score by as many as 200 points. But if you’re totally submerged in debt, a bankruptcy would give you a “fresh start” and might be worth the damage it would cause to your credit.
Myth #4: Debt consolidation will delay getting out of debt This actually may or may not be a myth depending on several factors. As we wrote in an earlier paragraph, if you were to get a homeowner’s equity line of credit or refinance your mortgage to pay off your debts, this would assuredly delay getting out of debt. However, if you were to get another type of loan such as a personal loan with a low interest rate, you might be able to use the money this saves you to heavy up on your payments and get out of debt in less than five years.
Do the math
The important thing is to do the math before you decide to consolidate your debts with a loan. This will make sense only if you would have a lower interest rate, a lower monthly payment and if the loan would cost you less in total than if you were to just buckle down and pay off your debts You need to keep in mind the old maxim that you can’t borrow you way out of debt, which is what a debt consolidation loan amounts to. There are better alternatives available such as debt settlement, credit counseling or finding ways to increase your income that could help you become debt free and without having to borrow more money that you would just have to be pay back. For example, here’s a short video about using debt settlement to eliminate credit card debts.