Debt Consolidation in Miami FL vs. Bankruptcy: What is the Best Option?

Debt consolidation in Miami is undoubtedly one of the go-to strategies for managing consumer debt. If you’re struggling to keep up with payments on your debts, you’re among the many Miami residents who carry credit card balances and unsecured debt. By now, you are probably already sizing up the available financial options. A good starting point is to understand what each option entails and the pros and cons of each approach. In this post, we discuss debt consolidation and how it compares to bankruptcy.

Debt Consolidation vs. Bankruptcy

If you have a hard time managing your credit card debts and other unsecured debts, you are better off trying consolidation. But how does debt consolidation work? Consolidation involves reorganizing several high-interest debts into one payment and taking out a new, low-interest secured, or unsecured loan or line of credit to pay off all your debt. On the other hand, bankruptcy is a legal process that individuals can use to wipe away their debts.

Debt Consolidation in Miami: Process, Pros, and Cons

By combining multiple debts into one, debt consolidation seeks to reduce the number of payments you have to make each month. In addition to reducing the chances of skipping a payment, debt consolidation potentially brings down the amount of interest you pay on your debts.

If debt consolidation in Miami is a good fit, there are various forms of credit you can explore, including the following:

Personal Loan or Line of Credit

Good credit could help you qualify for a low-interest personal loan to consolidate your debts. A debt consolidation company in Miami, or any lender, in that case, will look at your credit score and reports to evaluate the likelihood of you being punctual on the new payments.

With a good to excellent credit score, a credit union or any other financial institution could offer you a personal line of credit with favorable terms. From this line of credit, you can draw funds up to a given limit and use the money to pay off your debts. While this form of debt consolidation in Miami comes with desirable interest payment benefits, you may not always get a personal line of credit sufficiently large to settle all your debts at once.

Balance Transfer Credit Card

Credit cardholders who juggle multiple monthly bills can consolidate their debts by applying for a balance transfer credit card with a 0% introductory APR. Yet, such a card can only help you save on interest charges as long as the introductory APR lasts. With most of these running for not more than 20 months, you will have to put up with the standard interest charges on the card if there’s any unpaid balance at the end of the introductory period.

Home Equity Loan or Line of Credit

Another option for debt consolidation Miami residents can turn to is a home equity loan or line of credit. These are available to homeowners with significant useable equity in their property. A home equity loan will likely help you save on interest charges since it is secured against your property.

A home equity line of credit allows you to draw funds against a given portion of the equity in your property for a draw period of up to 10 years. While this gives you access to large sums for debt repayment, failure to adhere to the payment terms of a HELOC could result in the loss of your home.

With all these options, still you may wonder: is debt consolidation a good option for me? Consolidation could be your best option if you have good credit, are juggling multiple bills, and can repay your debts. However, you must be a disciplined borrower who can make timely payments.

Bankruptcy as a Debt Management Option

Bankruptcy also helps protect consumers and businesses overwhelmed by debt. Chapter 7 and Chapter 13 are the types of bankruptcy that apply to individuals. Both can effectively discharge various types of debt, including utility bills, unpaid credit card balances, payday loans, and private debts. However, bankruptcy doesn’t erase criminal fines, court-ordered support and doesn’t protect individuals from foreclosure or repossession of property.

Chapter 7 bankruptcy involves the liquidation of assets, apart from exempt property. Proceeds of the liquidation are then transferred to creditors to repay your debts. While there may be some exemptions, most outstanding debt is discharged after finalizing the process. If you file for Chapter 7 bankruptcy, you’ll likely lose assets, and the bankruptcy stays on your credit report for ten years.

Chapter 13 bankruptcy involves taking up a debt-repayment plan while keeping your assets. Your attorney will negotiate the repayment plan with the court, which mainly spans 3-5 years. At the end of the agreed-upon period, the court evaluates whether you’ve made payments as agreed. If you’ve stuck to the agreement, the court discharges any outstanding debt even if you only paid a portion of what you originally owed.

If you can still afford to repay your debts, Chapter 13 could be more favorable than Chapter 7. This is because it allows you to keep some of your property and is stricken off your credit report after seven years. If need be, you will be eligible to file another Chapter 13 two years after the finalization of your first case.

Debt Consolidation vs. Bankruptcy: Deciding Which is Better

Residents often find themselves at crossroads when choosing between debt consolidation in Miami and bankruptcy. To help deal with this dilemma, here are the factors to consider when choosing:

Credit score: With a higher credit score, you can get better terms on a consolidation loan or line of credit.

Debt amount: if you have manageable debt, you can consolidate it and pay over a given period. However, if the debt is too much to repay, you are better off filing Chapter 7 or 13.

Income reliability: Debt consolidation in Miami may not suffice if you have unpredictable income or are at risk of losing your job. Yet, individuals with unpredictable incomes could benefit from filing for Chapter 7 bankruptcy if they are eligible.

Bottom Line

Generally, Miami debt consolidation is a better option for borrowers with good credit as they can qualify for lower interest rates on consolidation loans. Filing for Chapter 7 bankruptcy can wipe out forgivable debt and hand a clean slate to borrowers who are in a dire financial situation and carry hefty amounts of debt.