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Bankruptcy vs Credit Consolidation – Which should I choose?

When it comes to bankruptcy vs credit consolidation, there are different implications to consider.

Debt consolidation and bankruptcy are two very different methods for dealing with debt. They both affect your credit score, but the difference is significant. Consolidating can affect your score in the short term, while a bankruptcy remains on your credit score for six or seven years (depending on your province).

According to statistics from the Government of Canada, there were over 14,000 bankruptcies in Q4 of 2019.

If your debt is becoming too difficult to manage, you may need to look at alternative solutions. Usually, a consumer proposal or bankruptcy should be your last resort. Both require a licensed insolvency trustee or bankruptcy trustees, respectively. If you think you can manage to pay off your debts, a debt consolidation loan may be the better option.

Bankruptcy vs Credit Consolidation

Bankruptcy vs Credit Consolidation

While filing bankruptcy in Canada allows you to regain control over your debt and start life anew, it should only be your last resort. Another alternative worth considering is credit consolidation. Consolidating debts does not offer the same legal protections as bankruptcy and may not be the right choice for everyone. If you’re sitting on the fence and contemplating which path to take, here is some basic information to help you decide.

Bankruptcy may be a better option than credit consolidation if you risk losing your home to foreclosure or risk having your car or other personal property repossessed. It’s also ideal for scenarios varying from a recent job loss if you have no other source of income or if you have high credit card debt.

Should I opt for Credit Consolidation?

If you feel you can become debt-free with a little help, you may go for credit consolidation. It typically involves working with a credit counselling agency that specializes in negotiating with creditors. You will most likely make monthly payments directly to the credit counselling organization.

From there, the agency pays your creditors, usually after negotiating for a lower interest rate. Sometimes, the agency can also arrange a lower balance too.

Ultimately, bankruptcy is a system under federal law, procedures, and regulations designed to protect the debtor and creditor. While it can undoubtedly eliminate federal and provincial tax debt in some instances, credit consolidation does not eliminate or deal with taxes. Credit consolidation has its advantages and drawbacks compared to bankruptcy. It allows you to get out of debt faster, and it’s less damaging to your credit.

So, where do I go from here?

If you are struggling with debt, bankruptcy and credit consolidation are two viable options to consider. A trained credit counsellor can evaluate your financial situation, and help you carefully weigh the pros and cons of each option. Afterward, you can discuss the solution that best fits your position. He or she may also speak to you about debt management or other options as well.

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