Debt Consolidation vs. Debt Restructuring

debt consolidations and debt restructuring are two different ways of dealing with the same problem – inability to pay your debts. While debt consolidation typically involves individual debts, and debt restructuring typically involves businesses, both options can help you succeed in paying your debts through possible debt reduction and regaining financial stability. However, both debt consolidation and debt restructuring have advantages and disadvantages that you should fully explore before making a decision as to which option to use.

Debt Consolidation

Debt consolidation is the process by which you combine together multiple debts into a single debt or loan. The most common way to achieve debt consolidation is through a debt consolidation loan, which can be a home equity loan or another type of personal loan. Once you apply and are approved for a debt consolidation loan, the proceeds of that loan are used to pay off some or all of your existing debts. By doing so, you are likely to lower your monthly debt payments, and you may even be paying a lower interest rate on your debt consolidation loan than you were on your original debts, depending on your situation. This option allows you to pay your creditors in full, and gives you some financial relief in the process. However, remember that you are likely to pay more interest over the life of the consolidation loan, as it undoubtedly will be stretched over a longer repayment term.

Debt Restructuring

Debt restructuring is a term that is most frequently used with respect to businesses suffering financial difficulties. A common alternative to bankruptcy, debt restructuring involves the financially stressed business and its major creditors entering into agreements to adjust the debts owed, either by canceling a portion of the debt, and/or extending more favorable or flexible repayment terms. You and your creditors may engage in extensive negotiations in order to reach a mutually acceptable debt settlement. Although creditors may initially balk at the prospect of a debt restructuring, it is often is a more lucrative option than bankruptcy, in that it is faster and may net them more money toward their debt.

Contact an Attorney for Help in Dealing with Unpaid Debts

Whatever your situation, it is always helpful to consult an attorney who specializes in creditor-debtor law in order to learn more about potential options for dealing with your debts, as well as any advantages and/or disadvantages of those options. By becoming better educated as to your options, you will put yourself in the best position for making an informed choice as to your options.

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