Bankruptcy, debt consolidation or debt settlement -- what to do?

Are you one of the many New Jersey residents who is struggling financially? If you have a large amount of debt, getting rid of it as soon as possible would grant you and your family some relief. What is the best way to go about eliminating debt? Bankruptcy, debt consolidation or debt settlement?

Each of these debt relief options has advantages and disadvantages. You simply have to decide which best suits your individual needs and financial goals.

Debt consolidation

A lot of people think that, if they could only reduce their monthly payments, they would be just fine. They can do this by consolidating their debts into one loan, sometimes at a better interest rate than they currently have. The big disadvantage of debt consolidation is the added interest and fees. If you go this route, you may end up adding more debt in the long run.

Debt settlement

Debt settlement is where you work with your creditors to reduce the amount you owe. Some creditors are willing to lower your debt obligation or interest rates if you ask, though most are likely to refuse. If you do not feel comfortable asking this of them on your own, an experienced attorney can help you negotiate the terms. If negotiations are successful, the big disadvantage to debt settlement comes at tax time. You'll likely receive a 1099 showing the forgiven debt as income, which is then taxable.


Bankruptcy has several advantages over debt consolidation and debt settlement. Depending on which type of bankruptcy you pursue, if approved, certain debts will either discharge immediately or a repayment schedule will be created, making it more affordable to meet your debt obligations. Other benefits of pursuing bankruptcy include:

  • No tax penalties
  • Protection from creditor harassment
  • Relief is immediate

The main disadvantage to bankruptcy is the hit your credit rating will take, but that can improve over time.

There is more than one way to resolve debt problems. Your situation is unique to you. What works for someone else may not work for you. Legal counsel can review the details of your specific situation and assist you in taking the steps necessary to achieve relief. You can pursue the debt relief option that will help you achieve the fresh financial start you desire. You just need to take the first step and ask for help.

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