Are Bankruptcy And Debt Consolidation Different?

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Are you in a bad financial situation and looking for a legal way to get you out of it? If so, you've likely heard about bankruptcy and debt consolidation. These are two different ways to go about solving your financial issues, which is why it helps to know the differences between the two.

Debt Consolidation

When you use debt consolidation, you are essentially taking all of your existing debts and combining them together. For example, you may have multiple credit cards that you owe various amounts of money on at different interest rates, and it is too much for you to make the minimum payments on them all. The debt consolidation company pays off those debts so that you only owe the consolidation company, and they offer you a new interest rate on all of the debt.

The nice thing about using debt consolidation is that it is going to lower your monthly payment over the long term to pay back the money that you owe. This can make the debt more manageable in a way that does not impact your credit because all of your previous debts will be paid off and replaced with a single creditor.

However, the downfall of debt consolidation is that you need to be aware of the terms of the loan and how long you have to pay it back. Stretching out smaller payments over a longer period of time is going to potentially cost you more money in the long run. If you are able to make payments in advance toward the principal, it can be a great way to save your credit and manage the debt. 


Bankruptcy will be the easiest way to get out of debt but have the biggest impact on your credit. It is possible for many unsecured debts, such as credit card debt, to be completely discharged so that you do not have to pay them back. There are other forms of bankruptcy, which discharge some debt and force you to repay some of the debt back over time for a lesser negative impact on your credit.

The problem with bankruptcy is that although it can give you a fresh financial start with paying as little as possible, the impact on your credit will make it difficult to get another loan. If you have desires to finance a vehicle or get a mortgage to own a home, it may not be possible for several years after your bankruptcy filing is complete. 

Work with a bankruptcy or debt consolidation lawyer to use the form of bankruptcy that will work best for you.