Is Filing Bancruptcy Or Debt Consolidation Better For My Credit Score?

By Ashley Jones on March 8, 2010, 2:44 pm Posted in Business News

Being in debt is no picnic. Unfortunately these days too many individuals and families are facing bankruptcy, foreclosure and repossessions due to a reduction in income, loss of a job or increase in living costs. When making an attempt to better a credit score, the main question consumers have is whether debt consolidation or bankruptcy is the way to and which one is better for credit scores overall?

Debt Consolidation

Debt consolidation tends to hurt the consumer’s credit score, because no one can utilize a debt consolidation program unless they are behind in their payments or payments are in delinquency. Debt consolidation will improve a consumer’s credit score if creditors agree to mark debts as “Paid in Full” or “Satisfied” upon entering the debt consolidation agreement. If debt collectors will not agree to this or this is not part of the debt consolidation agreement, a debt consolidation program can hurt a consumer’s credit score negatively.

Bankruptcy

Not everyone qualifies to file for bankruptcy and in those cases, consumers should consider a debt consolidation program where debts entered into the agreement are marked as “Paid in Full”. The upside to filing for bankruptcy is that it will erase all dues, which are owed. Not all debts are eligible to be included in filing for bankruptcy, however. Bankruptcy can affect a credit score by as much as 200 to 250 points negatively and depending on which type of bankruptcy is filed, the effects will last on the consumer’s credit report for up to ten years.

 

Pros And Cons Of Both

Not everyone qualifies for bankruptcy or debt consolidation programs. Consumers must have a certain amount of delinquent debt on their credit report in order to qualify. Filing for bankruptcy is a more difficult process than it was ten years ago. In either case use an expert to help make the right decision.

Related posts:

1. How Long Does A Debt Management Or Debt Settlement Program Work?
2. After Debt Consolidation – How Long Before My Credit Score Comes Back?
3. Can I Write Off Credit Card Debt On A Debt Consolidation Loan?
4. Can I File For Bancruptcy While I’m Consolidating Debt?
5. Debt Consolidation: Can I Still Use My Credit Cards During This Period?