According to data from the American Enterprise Institute, the economy of the United States generated 5.6% more output in the year 2013 than back in the fourth quarter of 2007. In addition, corporate profits now exceed pre-recession peak levels by more than 40%.
The bad news is that output is being produced at the cost of the jobs of two million workers.
In these tough economic times, it is becoming harder and harder to find, let alone, keep a job. If you find yourself unemployed and with more debt than you can hope to pay off, you might have to choose between these two debt management strategies.
Debt Consolidation
For people who want to maintain a good reputation and credit score, debt consolidation is usually the way to go.
When you consolidate your debt, you take out a loan that you use to pay for all of the smaller loans that you have. Supporters of this strategy present it as being easier than having to manage multiple debts.
Pros
As mentioned above, simplicity is one of the main reasons that people like debt consolidation. The psychological benefit of not having to juggle multiple loans is immense.
Your Reputation is Protected
Anyone who puts in enough effort is sure to find out about your history with bankruptcy. Debt consolidation on the other hand, can’t be found on public records. Debt consolidation also usually doesn’t affect your credit score
Cons
There a Chance Your Property Will Get Taken Away
If you end up defaulting on your loan payments, any property that used as collateral may end up getting taken and used to satisfy debtors.
Hidden Costs
Though debt consolidation gives you a chance to pay less per month and have a lower interest rate, staying in debt for too long could make you end up spending more than you originally planned.
Bankruptcy
If you file for bankruptcy, you could either end up eliminating or repaying your debts with the supervision of a bankruptcy court. There are generally two main kinds of bankruptcy: liquidation and reorganization.
Chapter 7 bankruptcy is classified as liquidation. That is because a trustee will sell your property to pay back your debt. Not all property can be taken and sold as some of it is protected under the law.
Though there are three different kinds of reorganization bankruptcy, they all share something similar. All of them reorganize your debt and allow you to repay your debt under a repayment plan.
Pros
Protection
Once you declare bankruptcy, you are under the protection of the law. The ‘automatic stay’ prevents your creditors and collectors from trying to collect from you. You will be protected from lawsuits, phone calls, repossessions, foreclosures and garnishments.
A Clean Slate
Though your credit rating may take a hit, filing for bankruptcy gives you the chance to eliminate most of your unsecured debt and start anew. Building your credit score back up is easier than having to live from hand to mouth for a few years.
Cons
Your Reputation Takes a Hit
Because bankruptcy records are available at the courthouse where you filed, anyone who searches hard enough is going to know. There is also the inevitable hit that your credit score will take.
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