In this age of economic instability and over-spending, people from all economic levels have found themselves near the brink of financial disaster. Deciding how to get out of debt can be complicated. If you have tried eliminating debt on your own without success, or you have enrolled in a credit counselling program and failed, basically there are really only two choices: counselling or bankruptcy. Following is a brief definition of these procedures and a discussion of the pros and cons of each.


When you enter into credit counselling, you work with an agency. You are required to make one monthly payment to this agency, and then they pay each of your creditors, primarily card companies. These agencies are non-profit and are members of national associations.




1. Your card debt is usually paid off in three to five years with one routine payment per month. This helps to compel you to budget and learn how to manage your money.


2. By the time you join counseling, most of the damage to your credit score has already occurred. This is due to the late payments and your debts being sent to a collection agency. After entering credit counseling, your credit rating may or may not go down farther, depending on your individual situation.


3. You avoid the paperwork, inconvenience and stigma attached to filing for bankruptcy.




1. The rate of non-compliance is fairly high. It is estimated that 47 percent of those who begin debt management don’t complete the program.


2. It takes a long time – four to six years before you are able to establish credit again after completing credit counselling.


3. Often, the fact that you have been through credit counselling can influence job-seeking outcomes.


4. It’s possible that some of your creditors won’t cooperate with credit counselling agencies. You have to pay these creditors on your own.


Bankruptcy is a legal method whereby you can wipe out most categories of debt and get a fresh financial start. The label of bankruptcy stays on your credit report for up to ten years. It’s likely your FICO score will be low and affect your finances until you begin to strengthen your credit.


1. The process of discharging debt in bankruptcy and re-establishing credit is usually a faster way to rebuild some credit than from counselling.


2. An individual can discharge all unsecured debts – cards, person loans and medical bills.


3. Usually you are allowed to keep possession of your house and car.


4. Home loans may be available two or three years after you file.


5. The discharge of most debt relieves an individual of the stress of overwhelming financial responsibility.



1. You will be burdened with ten long years of bankruptcy being recorded on your FICO score.


2. You may not be able to get credit or you will pay a higher interest rate.


3. The notation of bankruptcy can impact the outcome of job searches.


4. There are often feelings of shame with bankruptcy – feeling that you’ve failed in a big way. There is still a stigma attached to personal bankruptcy.


Whether to file for bankruptcy or enrolled in credit counselling needs to be an individual decision requiring advice from an expert. If you find yourself in a very serious financial predicament involving deep debt, some kind of action is necessary. Both actions discussed have good and bad points in relation to restoring good credit scores.