Debt Consolidation vs Bankruptcy: A Comparison

Man Looking for Money in Piggy Bank

When many of my eventual clients first meet with me about bankruptcy, they want to know about other options to deal with their debt – they especially ask about debt consolidation vs bankruptcy.

Settlement plans. Balance transfers. A popular one is loan consolidation. Unfortunately, all these alternatives leave you doing the same thing over and over. (Remember what Albert Einstein said about doing the same thing over and over, and expecting a different result? It’s called being loco.)

About Debt, Generally.

I’ve never met someone that didn’t want to pay their debt. It’s often not their fault. Something happened that caused them to not be able to make payments.

Unfortunately, big financial companies aka banks love this. Why? As you carry an unpaid balance over time, the principal balance collects interest. That interest is usually around 20%. 

Making it even more tough, just paying the minimum payments found on your bills usually sets the banks up to charge and collect more interest. (When Albert Einstein also shared his realization about compound interest, banks listened.)

Some Ways to Get Out of Debt

Credit card debt is dangerous if you have an issue with income. Whatever got you there, you and your debt are there. Fortunately, there are ways to tackle it.


One of the most recommended strategies is to start using a budget. This takes some work and some discipline. There are lots of resources that you can find online to discuss budgets. One issue many of my clients have had with budgeting is that they are hard to implement. When you live by yourself, you have mouths to feed, and surprised medical expenses, a budget goes by the wayside. That being said, budgeting is a lifestyle, like working out. If you can find a way to make it stick in your life, many people find success with that.

Debt Consolidation

Another popular option is debt consolidation. What is debt consolidation, you ask? It’s a loan to pay off your debts. Essentially, you take all of your debt – with all of its high interest – and apply for loan that’s high interest but just slightly lower than your credit card interest rates. So while your credit card balances may be accruing interest at 20%, a loan consolidation does that at 17%. Oh, and by the way, there’s usually a short time limit for you to pay that consolidation loan back.

For some people, this can work. Again, I’ve found that it always comes down to income. If you have income to pay your bills, your bills will be paid.


Bankruptcy, plain and simply, is most often the best way to get out of debt that people refuse to take. It’s usually the quickest way out of debt, and the most affordable. The questions I get usually revolve around the stigma of filing for bankruptcy – who will know? how does it affect my credit? how can I rebuild credit after bankruptcy?

The stigma around bankruptcy has been created by the banks. While bankruptcy is public record, that information isn’t actively sent to anyone you know – not to your family, not to your work. Most people are below-median debtors (which means they make less than what the government believes the average household of your size makes), and they will generally be able to keep most, if not all, of their property when they file for bankruptcy. Finally, you can work to rebuild your credit pretty quickly after bankruptcy. I’ve had clients that bought houses in about 3 years after filing their case.


Dealing with debt is hard. It causes so much stress, worry and anxiety. It kills of creativity and livelihood. It literally makes people sick. That being said, debt exists, and lots of people have debt. You could try to hide from it and avoid it. That doesn’t work too well.

You could try budgeting, and that’s challenging because it takes a mindset shift and a lot of discipline. Many people are left deciding between debt consolidation vs bankruptcy. You could try loan consolidation, but that’s getting a high interest loan to repay even higher interest debts. Sure, you lowered the interest, but you’ve done the same thing that you were doing before.

Bankruptcy is often the fastest and easiest way to get out of debt. Most people keep most, if not all of their property. You can rebuild credit after you get your discharge.

If you’re interested to discover how filing for bankruptcy can help you get out of debt and reclaim your life, contact the Law Office of Richard Kistnen by emailing [email protected] or calling (718) 738-2324.

128-22 Rockaway Boulevard
South Ozone Park, NY 11420
United States
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