If you’re struggling with debt, you might be asking yourself this question, “Should I consolidate or file for bankruptcy?” If so, you might be one of those people who are experiencing a sweeping drop in cash flow and we won’t be surprised if you are experiencing difficulties in managing your debts and your daily expenses. Here are some straightforward tips on how to choose between debt consolidation and bankruptcy.

How much money do you have?

The primary situation when you should apply for debt consolidation rather than file for bankruptcy comes when interest rates are especially low and the monthly payments are manageable. Few specialized non bank lenders in Australia offer low interests – and if it fits your budget, you should take it.

This way, you can pay all your debts by rolling them into a manageable and affordable payment each month, and get some extra money for your current needs.

It is also a good opportunity to spread your payments rather than paying all of your debts entirely up front. If you have low cash flow, debt consolidation allows you to keep around extra cash that would otherwise be clasped in your debts. You can invest the extra money in high performing stocks, or inject it into the working capital of your small business (if you have one) to generate more returns in the process.

If you cannot afford the payments for loan consolidation, it may be time to consider bankruptcy instead. Despite the fact that it would really damage your credit score, it is an efficient tool to help you rebuild your financial status. You can restart your money situation with a clean slate. With few to zero debts to manage—you can start all over again without the extra baggage on monthly payments. But, you need to go through a debt counselling first to make sure that you will not fall back to the money pitfalls that brought you there in the first place. The court would be interested in how you use your money. So, it is important to get your paperwork ready.

What are your current income sources?

To get a loan, you need a good income source. That’s a known fact. Lenders and banks look for someone who has stable income, preferably not self-employed, that will be able to repay the loan they took within a given time period. This is the reason why you should be aware of your income sources. If your income isn’t as pleasant at the moment, look for a loan that your finances qualify to. If you’re one of the lucky few that get to meet their standards, you need to show proof. Get your past paychecks, pay slips – they will serve as proof that you have a stable income and are able to repay whatever loan you will be taking.

What are your potential income sources?

Finding a job may be hard nowadays, so if you’ve got the guts for it, you can be a small business owner. Make sure the business that you’re going to be building will be successful. It’s quite hard to predict its success, but if you’re in a situation like this, desperate times call for desperate measures.

Starting a business may be quite hard at first, but eventually, it will be easier when you get the hang of it. For starters, you need finances. You won’t get anywhere without finances. Grab a loan – a business loan from lenders that you wouldn’t have any problem repaying.

Final thoughts

When you make a decision, don’t be driven by guilt. You cannot spend your entire life feeling guilty about your past financial mistakes. Don’t let your credit file and collection notices manipulate you. The best thing is to choose which option would save you more money and at the same time clear up your credit file. If by consolidating your debts you can save money on interests and at the same time make monthly payments within your means – go for it. There is no need to file for bankruptcy and endure the years of having that record on your file.

Editorial Note: Opinions expressed here are the author’s alone, the author being www.australianlendingcentre.com.au, not those of Credit Fix Solutions, any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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