 TITLE: Bankruptcy or Debt Consolidation: Which Is Better for You? CONTENT: What Is Debt Consolidation?\n---------------------------\nDebt consolidation is a strategy that combines multiple debts into one loan or credit card with the goals of reducing both the number of payments you must keep track of each month and the amount of interest you pay.\nIf you're having trouble managing several credit card bills and perhaps a medical bill or a personal loan, debt consolidation lets you merge, or consolidate, them by taking out a personal loan, line of credit or a new credit card with sufficient spending limit to pay off all the loans. Doing this means you'll have one monthly payment in place of the handful you're juggling. Even better, because the interest rates on credit cards are often very high, your new monthly payment may be lower than the sum of all your old ones.\nThere are several forms of credit you can use to consolidate debt, including the following:\n*   **Personal loan**: If you have good credit, using a personal loan for debt consolidation is often a better option than using a new credit card. Personal loans almost always have lower interest rates than credit cards, so paying off your outstanding card balances with a loan can bring significant savings in interest payments every month. Plus you'll have a single consistent payment to manage every month, simplifying your debt payoff strategy.\n*   **Balance transfer credit card**: A balance transfer credit card with a low or 0% introductory annual percentage rate (APR) can save you on interest charges as well, but it's potentially riskier than a personal loan. Introductory APRs typically last no more than 20 months, and any portion of the transferred balance that's unpaid at the end of the introductory period will be subject to the card's standard interest rate on purchases. Certain cardholder agreements even stipulate that balance transfer balances must be paid in full by the end of the introductory period or you'll be charged interest retroactively on the full amount you transferred, not just the remaining balance. That can lead to a costly interest charge that negates much of the benefit of the debt consolidation strategy. That said, if you're sure you can pay off the transferred balance before the 0% intro period ends, you could save the most money this way, even taking balance transfer fees into account.\n*   **Personal line of credit**: If you qualify for a sufficiently large unsecured personal line of credit (offered by many credit unions and some other financial institutions), you'll likely see many of the same interest payment benefits as you do with a personal loan. Depending on the total you owe on your other loans and accounts, it may be difficult to get a personal credit line large enough to cover them all.\n*   **Home equity line of credit**: If you own a home and have paid enough of your mortgage to have significant equity in the property, using a home equity line of credit (HELOC) to consolidate your debts could reduce your interest costs as well. HELOCs typically allow you to borrow against a portion of the equity in your home for a 10-year stretch known as the draw period, during which you make interest-only payments against the balance you use. At the end of the draw period, you must begin paying principal, which can mean a major increase in monthly expenses. Note that failure to repay a HELOC according to the borrowing terms can mean the loss of your home. END