Should I attempt debt consolidation or file bankruptcy?

In today’s tough economy, it has become difficult for many to pay even the most basic of expenses. But when you add additional debt such as student loans on top of rent, food, and utilities, it may become impossible to keep up without making some drastic financial changes.

One way that people have dealt with large sums of debt is by filing bankruptcy. There are several types of bankruptcy, but in any case, this process allows for one to “wipe the slate clean” and get a fresh financial start.

Yet, while this may sound like a great alternative, bankruptcy also comes with some dire financial consequences and in some cases, it can turn out to be much worse than some of the other alternatives.

How to Reduce or Eliminate Student Loan Debt

With regard to reducing or eliminating student loan debt, two common considerations include bankruptcy and loan consolidation. With bankruptcy in general, it is possible for one to reduce or even eliminate debt, resulting in the easing up on the monthly outflow of cash. In this respect, the individual’s monthly expenses can be greatly reduced, and the creditors of the discharged debt will typically have to write it off as a loss.

Loan consolidation does not entail reducing or eliminating debt, but rather taking several different loans and combining them into just one loan. Oftentimes the consolidation will come with a smaller amount of monthly payment in comparison to what the borrower was previously paying in total for all of the loans. This is because they may obtain a lower interest rate on the new loan, and/or a longer time period with which to repay the debt.


When filing bankruptcy, the law allows individuals to eliminate certain debt if it is creating an undue hardship for the debtor and their family. The filer must prove to the bankruptcy court that they are only earning enough to pay for a minimal standard of living. This typically means that they should not be able to pay for amenities like internet, cable television, or a cell phone.

In most cases, however, if your student loan debt makes up the largest portion of your debt, then it is likely best not to file for bankruptcy. One reason for this is that courts are extremely reluctant to discharge student loans. Unless an individual can prove to the bankruptcy court that their student loan debt is an “undue hardship,” it is unlikely that this debt will even be eligible for discharge through a bankruptcy proceeding. In addition, there are other alternatives that can help in easing your financial strain, but without the long term negative consequences.

Loan Consolidation

If you are facing financial trouble and finding it difficult to pay your student loans, debt consolidation should be a serious consideration. Although you will not be “erasing” debt as you would be with bankruptcy, you are likely to get a much lower payment.

You will also not face the negative consequences to your credit report that you would by filing bankruptcy. By consolidating your student loans, you are likely to be much better able to manage the monthly payment, and this should get easier as your career and your amount of income progress in the future.