Debt Consolidation vs Bankruptcy

We fully understand the conditions that brought you here, because some of our employees, and even our founder, have been there before on a personal level. Choosing between debt consolidation and filing for bankruptcy is stressful and complicated. When deciding how to choose between debt consolidation and bankruptcy, there are digital minefields of misinformation, personal opinions, and advice from “pros” claiming to have the inside scoop.

Because Golden Financial Services offers debt consolidation, debt relief, and debt consultation, obviously it is our business to try to save you from bankruptcy. That said, our services aren’t for everyone. We consult with potential clients for free because we know you are already in a tough spot financially, and charging a fee just to tell you we can’t help you would leave you in a worse position than when you came to us. So, let this blog serve as a form of free consultation in itself – do you match any particular set of traits below? Here’s how to know if debt consolidation is right for you, or if bankruptcy is your best option instead. 

(Skip this blog if you would rather read about ways to clear high credit card debt before seeking consolidation or bankruptcy)

Is it better to consolidate debt or file Chapter 13 bankruptcy?

First of all, this isn’t a “quick” decision. Not only are there multiple types of bankruptcy, but specifically Chapter 13 bankruptcy has many parallels to debt consolidation. When you apply for and are granted Chapter 13 bankruptcy, a court approves a repayment plan that lets you repay creditors in a 3-5 year program. Any remaining amount owed on the debts will be discharged after all payments are made under the repayment plan. 

In debt consolidation, you are essentially leaving the government out of it, and are instead opting to use professional financial advisors to help you negotiate with your creditors, for a percentage fee of the debt you consolidated. The third-party professionals only get paid when they successfully negotiate a debt reduction for their client. This is the option to choose when you don’t need the federal government to protect you, and when you don’t want a bankruptcy added to your permanent personal financial record and credit score. 

Essentially, choose debt consolidation or debt relief when you have been unable to make minimum payments over at least 2 or 3 months. Choose bankruptcy when you cannot afford daily expenditures like commuting, food, or utilities. Bankruptcy, therefore, saves you from potential homelessness, but at the cost any ability to have a line of credit. During bankruptcy, you will only be able to use immediate funds from earnings, and you will still be responsible for debts like backed taxes, student loans, child support, alimony, and other government-issued debts.

You maintain your financial freedom under debt consolidation, to an extent, but if you are unable to pay the consultation fees as part of your monthly repayment program, you will not qualify.

Another option in bankruptcy is Chapter 7, which explains: “Chapter 7 bankruptcy is referred to as liquidation bankruptcy because a borrower may have to sell some of their assets to pay off their debts. In Chapter 7, any of the borrower’s assets that are not exempt from sale under the law may be sold by a court-appointed trustee or turned over to creditors to settle debts. Most other debts are discharged, with some exceptions.”

Speak with a representative at Golden Financial Services if you need further clarification on these options.

Do debt consolidation agreements hurt your credit?

Let’s be as clear as possible on this question: Anytime you request to pay less than the original amount of a loan, credit card, or any other amount from a creditor, your FICO credit score will take a hit. What you are essentially doing when you file paperwork for debt consolidation is trading your current credit score for relief on debts you can’t pay. It is always better to reduce your debts in favor of a dip in your score because there are more serious consequences for unpaid bills than there is for temporarily not being able to qualify for an additional line of credit.

Debt consolidation also doesn’t eliminate your debt, it simply restructures it into more reasonable monthly payments, while extending the length of projected debt payments. This means you will make a lower total monthly payment towards all debt (including the third-party fee), but it will take longer to pay off your total debt. This is why debt consolidation should only be considered if you have no other options but consolidation or bankruptcy.

Is it wise to consolidate debt?

If you haven’t realized it by now – it is likely that unwise decisions and a few poor circumstances are what got you here in the first place. The wisest decisions are to spend within your means, pack away rainy day funds, and diversify your earnings with retirement savings and a little play in the stock market.

However, there are lifelines for those that ignored the red flags and are now in severe debt. As we detailed above, yes we charge a fee, and yes you will have a longer term to pay off debt. BUT, you will have paid off your debt over time, and as long as you adhere to the terms of your consolidation plan, you will eventually come out the other side in better shape. You will have paid more than you owed in the first place, but you did so by lowering your monthly payments while improving your quality of life.

Do your research before you apply! Start by calculating your monthly budget – a balance between total monthly debt commitments and your total income. Then review the available programs and give us a call before making any snap judgment decisions.


If you found our blog looking for financial advice or assistance with credit card debt relief or debt consolidation, call Golden Financial Services today at (866)-376-9846 or You can check out the rest of our blog here, and do your research on our services here. Let’s talk soon!

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