Debt Consolidation vs Bankruptcy: Path to Financial Recovery

financial recovery

Manage your debt the smart way to improve your financial future.

Aussies have some of the world’s highest personal debt. Australia’s household debt grew by more than 7% in 2022, according to the Australian Bureau of Statistics. If bankruptcy is looking likely, consider whether proactively consolidating debt now is a better move.

Debt consolidation is often chosen as an alternative to voluntary bankruptcy, a choice dependent upon various factors. Whatever you decide, the Yes Loans expert team can make sure you’ve investigated the possibilities open to you before reaching a decision.


What does Debt consolidation mean?

Dealing with debt can become overwhelming when you have multiple loans at once, and are feeling the pinch. Unfortunately, many of us put debt management solutions in the too hard basket. Missing repayments amplifies the problem, and can reduce your options.

Debt consolidation loans let you streamline messy debts with varying interest rates and scattered repayment schedules into one simple loan. Now you’re dealing with a single creditor and repayment plan, meaning less pressure in your day-to-day financial life.

A huge positive of consolidating your debt under one loan with a lower interest rate, is paying back less interest over time. Our experienced brokers can have a conversation with you to discuss the best possible loan terms, taking your credit rating into account.


What is voluntary bankruptcy?

The Australian Financial Security Authority describes bankruptcy as a legal process, that releases you from most debts. You can enter into bankruptcy unwillingly through the courts, at the request of a creditor to whom you are indebted, or petition for voluntary bankruptcy.

Voluntary bankruptcy is suited to those who are insolvent, with limited credit options. Once approved, a trustee will be appointed, who assesses financial status (debts, assets, and income), informs creditors, and can organise the sale of some of your assets for repayments.

On the surface, it sounds like this relief from debt is good. Right? In the immediate sense, yes. But bankruptcy has repercussions that may impact various aspects of your life. Be aware you could be dealing with the aftermath of bankruptcy a few years down the track.


Bankruptcy, and the fine print

Bankruptcy covers just over a three-year period. During this time, you are required to be transparent with your financial records and dealings. Your income level could lead to mandatory payments. Your work and personal life may also be affected by restrictions.

For example, your name is permanently added to the National Personal Insolvency Index, and your trustee must give permission for international travel. You may be required to list bankruptcy in credit applications. Certain professional positions are not allowed.

Bankruptcy does not clear all debts. Exceptions include child support and court-imposed fines. Bankruptcy applies primarily to unsecured debts. A complex process that can help when no other options are viable, bankruptcy is best handled with professional input.


Types of debts commonly consolidated

Consolidated debt means creating a repayment plan that suits your lifestyle needs. Ideally, you end up with more readily available cash flow in your daily life with a longer term loan, a healthier credit rating once various debts have been dealt with, and less outlay overall.

Credit card debt, personal loans, and car loans are often consolidated as are a range of bills, from medical to utilities. You can even include tax debt. Our Perth debt management team will verify what debts qualify, and help you put in place a workable financial strategy.

we also help with loan protection insurance, ensuring unexpected bumps in your life path won’t have an immediate adverse effect on you and your family. Consumer credit insurance is designed to provide financial support in times of need, covering your repayments.


Who can access Debt consolidation?

The credit score is a key consideration when applying for this type of loan. Other factors like income and assets can also be relevant. Our finance brokers will guide you. Securing a debt consolidation loan that works in your favour becomes simpler with an expert onboard.

As a leading Australian finance broker, Yes Loans focuses on taking the hard work out of securing loans and finding the right flexible finance fit for your needs, at competitive rates. Debt consolidation is best done sooner rather than later, for the most beneficial arrangement.

Because the goal is to avoid any current repayment pressure repeating, we also provide the financial strategy that accompanies the loan. Stress-free financing is key. We want to help ensure you won’t have to deal with unpaid creditors and debt collectors in the future.


Don’t forget debt refinancing


While they sound similar, there is a difference between debt consolidation and debt refinancing. Debt consolidation can be described as amalgamating all your loans into one loan. Instead of multiple in-play, now you have one interest rate and payment scheme.

In comparison, debt refinancing involves replacing a current loan with a new one that offers better conditions than the original. Those with a good or recently improved credit score may be able to set a more accommodating repayment plan across the coming years.

With both on the table, you have multiple ways to approach and try to resolve a debt crisis before resorting to bankruptcy. If you would like to explore the benefits of refinancing debt versus debt consolidation, our experts are happy to discuss these details with you.


Seeking expert advice

For those caught up in the legal ramifications of unpaid debt or struggling to source future credit, options can be limited. Filing for bankruptcy can help with financial recovery. But in general, bankruptcy is viewed as the final choice once other possibilities are exhausted.

Taking out new loans to pay off other loans can lead to a debt spiral. It’s time to seek expert input. Choose to be proactive, and take control of your financial health, with professional assistance. The good news is, we know how to best navigate through the maze you’re in.

We tailor a path forward that improves your long-term situation. As a leading Perth loan company, Yes Loans wants to help you deal with debt in a way that has a positive effect on future financing opportunities. Reach out to us today for a no-obligation conversation.


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