Why should you consolidate your debts rather than declare bankruptcy?

What’s the similarity between a multi-million dollar corporation like Kodak and the diner that closed down next door? They have both been through bankruptcy. What's the difference? One knew how to make it through; the other didn't. This, here, is the secret to all business successes you have ever dream of. Companies like Kodak, General Motors, and Hugo Boss have all been through tumultuous times. They have declared bankruptcies, and then they have bounced back with renewed vigor.

When a business is under insurmountable debt, and the owners can see no light of hope, they usually declare bankruptcy. Many entrepreneurs think this is the easy way out. Of course, you do not have to pay off many your debts, many creditors stop bothering you all together, and the rest cannot touch the money that's left in your business accounts. Bankruptcy does look more lucrative than consolidating your loans from the other side of the hedge.

What is bankruptcy all about?

Cons of bankruptcy –

1. Your credit takes a hit –

Your credit score will immediately plummet after your declare bankruptcy. It does not matter which chapter you opt for. The moment your business goes bankrupt, your credit score goes kaput. The bad record stays on for at least seven to ten years depending on the type of bankruptcy. To reinstate your good credit score, you need to receive your bankruptcy discharge.

2. Surrendering what you love –

Bankruptcy can make you do away with many luxuries of your life. From the all-in-one home theater system to the sports car you drive. You may have to give that up once you declare bankruptcy. The court will put you on a strict budget for the next five years. Although it does not mean the Salvation Army store and soup kitchens, it can get pretty ugly for those used to the finer things in life.

3. Forget reputation –

You will have to do away with your credit scores. You will end up running your business repute too. In fact, once you declare bankruptcy, you cannot work on improving your credit score for the next five years without permission from your court. An electronic subscription service (PACER) can show your bankruptcy records. Any federal bankruptcy courthouse will also preserve your bankruptcy records until time’s end.

Bankruptcy is not as liberating as most people assume it to be. It comes with many constraints that will kill all chances of your business recuperating anytime soon. It is definitely an end and, in one way, a solution to a long-standing problem.It was possible for giants like Kodak and Hugo Boss simply because they have the resources and influential benefactors who trusted them with funds during their hardships.

Why is debt consolidation a better option?

More businesses should think about debt consolidation during their financial hardships.

Here are the most apparent pros of opting for a business debts consolidation –

i. You do not have to manage multiple loans

ii. You will have to pay one creditor only

iii. You do not have to calculate various interest rates and payment amounts

iv. You will end up paying less in interest and a lower installment each month

v. You can buy extra time to pay off the final loan amount

These reasons are enough to make all business owners swoon. Debt consolidation loan is, however, a means to financial stability. It is not the solution. This is a definite con of debt consolidation. It is more of an opportunity than a result. By opting for consolidating your debts, you are giving your business another chance as success.

Debt consolidation does not hit your reputation. In fact, you can keep your financial matters private until you choose. A debt consolidation report does show on your credit report; it is not available to your creditors and investors directly. You can work on building your credit scores up slowly.

Most professional debt consolidation companies also come with an option for debt counseling. Debt negotiation is an option we do not recommend. However, debt counseling is quite the lifesaver for most businesses facing financial glitches. A professional might help you gain a fresh perspective on your business issues. You will be able to prioritize your debts and manage your finances better. All entrepreneurs should seek debt management and debt counseling as soon as they sense any financial trouble. Debt advice makes it much easier for any businessman to make the right decisions. Since debt consolidation also involves acute financial decision-making, a counseling session obviously benefits the entrepreneurs in need.

Wrapping things up –

Bankruptcy wipes the slate clean. However, it also comes as a mental setback for most entrepreneurs. There is no chance of getting started on your credit score in the next five years and no chance of getting a business loan as well. On the other hand, debt consolidation has a smaller impact on credit scores. In fact, once you start to pay off your smaller debts, you will start to see an improvement in your credit records.

Debt consolidation loans usually come with enough cash for new business ventures. This means you can get started on forging new paths for gaining revenues while you pay off your new debt. Filing a bankruptcy usually calls for a fresh start. That does sound very appealing, but that also means building your credit score and business repute from scratch.

No matter where you are, you should pick a company that gives you a wholesome deal. You should not have to run across the state from one company to another to fulfill your financial needs. The company you choose should be able to advise you and provide you with enough funds to keep your business afloat.

It does not matter how bad you think your business finances are; we believe that you should try debt consolidation and debt management before you even think about filing for bankruptcy.

Evans Connor consults for a debt consolidation loans program in Chicago. He has over 19 year’s experience in the financial industry.