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Loan consolidation or bankruptcy? There is no need to choose.

Financial strain can strike virtually any family, even those who are college-educated. In fact, heavy student loan debt can contribute to money troubles and make it difficult to meet debt service obligations. For some in Arkansas, loan consolidation offers a path to more manageable student loan debt. While many people believe that bankruptcy and consolidation are completely unrelated financial tools, the two often work in conjunction.

For example, an individual who is saddled with high levels of consumer debt may file for bankruptcy in order to eliminate those debts through the discharge process. While this can lead to a much more manageable monthly budget, student loan debt could still cause financial strain, especially if there are multiple student loans with different interest rates and terms. Consolidation could be of assistance and can provide a measure of additional debt relief.

Consolidation involves taking out one large loan for the purpose of paying off several smaller student loans. In the end, the borrower has just one monthly loan payment to make. Better interest rates and extended repayment terms could lower the monthly payment, although the total cost over the life of the loan could exceed that of multiple smaller loans.

Bankruptcy will not lead to the elimination of student loan debt, but it can result in the discharge of many other types of consumer debt. Once those obligations are removed, Arkansas residents who choose consolidation can focus on paying down their consolidated student loan debt and rebuilding financial security. For many, this approach can make it possible to move beyond crippling levels of debt and toward fresh financial beginnings.    

Source: Fox Business, "The Pros & Cons of Consolidating Your Student Loans", AJ Smith, Nov. 17, 2015

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