Bankruptcy is the worst of financial situations that can happen to an individual or business. It is the situation where one becomes financially cripple and incapable of clearing creditor dues. Declaration of bankruptcy requires legal sanction from the court of Law. Bankruptcy ruins a debtor’s financial future and is also a creditor’s worst nightmare.

Debt Consolidation is considered a convenient alternative to bankruptcy. Debtors use a single large loan amount to pay off multiple debts. Banks offer loans to debtors opting for Debt Consolidation. A major reason for the popularity of debt consolidation is its concept - a large loan to eliminate smaller debts. Creditors are happy as they can be sure their dues are paid as against bankruptcy where there is no guarantee that they would receive their money back.

While Debt Consolidation certainly offers debt relief for some, a majority of debtors find that they are in the same situation as before, or worse, more in debt than before. They realize they are moving in circles, borrowing money, clearing debts, and borrowing more money to clear the current. Moreover, debt consolidation loans offered are not that easy to get. Debtors with high debt-income ratio or with a negative credit report showing late payments are not generally considered for these loans.