Topic: Credit Cards

debt consolidation loan or bankruptcy

Should I get a debt consolidation loan or file for bankruptcy?

A user on Quora asks: I owe $65k in credit card debt. What’s better: those debt consolidation loans that I get in the mail or filing for bankruptcy?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

There are 3 main factors you must take into consideration in deciding which option best suits you:

Financial Goals

Do you have any financial goals which require you to have access to credit within the next 7 years? If the answer is “yes” then bankruptcy might not be the best choice for you.

Within the context of the question above, from my experience, personal bankruptcy is appropriate if you’re either really young or really old.

If you’re really young, you can file and get rid of your debt. By the time you’re in your late twenties or early thirties your bankruptcy will be off your credit record just in time for you to get that mortgage or that business loan.

If you’re really old, you’re past the station in life where you need to get a mortgage or business loan.


Do you have any assets? If you have assets, they may have to be liquidated by a Licensed Insolvency Trustee if you choose to file bankruptcy. Therefore, this will also be an important factor in your decision.

Ability to service debt consolidation loan payments

Can you afford to make the monthly payments on a debt consolidation loan? The size of your payments will depend on the borrowing rate you can get from the lending institution. If the interest rate you are paying on the debt consolidation loan is higher than the average interest rate you currently are paying on your credit cards, you’ll be paying more money in interest than you would if you just paid off the credit cards on your own. In this situation, a debt consolidation loan wouldn’t make any sense.

On the other hand, if you can negotiate an interest rate on the debt consolidation loan that is lower than the average interest rate on your credit cards, then such a loan might make financial sense.

shopping addict

Advice for a shopping addict

Shopping addict Jocelyn Stengel asks on Quora: I am a shopping addict, how do I go about freezing my credit and what other steps can your recommend I take to prevent myself from opening credit?

Victor Fong, Licensed Insolvency Trustee in Toronto, Canada replies:

Freezing your credit – call your bank and ask them to cancel your loan accounts. Of course, you will still need to pay off the current balances.

Prevent opening new credit – lodge a written undertaking with Equifax, Trans Union and Experian (i.e., the credit reporting agencies) that you will not use, possess, apply for, acquire or obtain any credit for 3 years. Three years should be enough time to give yourself a break from credit and learn how to live on cash.