Should I Choose Credit Counseling Rather Than Bankruptcy?

If you are behind on your bills, the chances are that you have received information about “credit counseling” or “debt consolidation.” These are terms applied to a service that offers to consolidate your bills and negotiate with your creditors to lower your payments so that you can get your debts paid off quickly.  However, many debtors find that credit counseling or debt consolidation is not the best way for them to handle their outstanding balances.  In some cases, bankruptcy may give the debtor better options for discharging debt and will have a similar impact on credit ratings.

The Myth About Debt Consolidation

Many people who choose debt consolidation believe that doing so will help them repair their credit.  These same people are shocked to learn that using debt consolidation services may cause their credit rating to drop almost as much as filing bankruptcy. The reason for this phenomenon has to do with how credit ratings are calculated.  While bankruptcy will have an immediate impact on a debtor’s credit rating, the individual immediately begins to recover after filing.  Within a few years, with the judicious use of prepaid credit cards and other secured loans, the person who filed bankruptcy may find that creditors are willing to offer him or her better interest rates and more generous credit lines.   However, a debtor who engages a credit counseling firm may continue to make lower-than-standard payments for some time, essentially lengthening the amount of time he or she carries a negative credit rating. Furthermore, when a debtor receives a discharge through bankruptcy, he or she essentially wipes out the debt that has accumulated, making it easier to restructure a workable budget.  Those who are using the services of a credit counseling firm may have to make payments for several years to bring balances down, leaving little room for sudden emergencies or other problems that could arise.  If the debtor misses payments, the credit counseling or debt consolidation firm can stop paying the bills, meaning that the debtor must once again deal with the creditors alone. If you are struggling to pay your bills and have considered credit counseling or debt consolidation, talk to the experienced bankruptcy attorneys at the Oswalt Law Group in Phoenix.  These lawyers can help you determine if bankruptcy is the best choice for your situation or if you should pursue other ways of paying off your debt.