How do I decide to declare bankruptcy rather than borrow more?

When you have almost reached your debt limit and can barely afford to both make your monthly payments as well as your monthly financial needs, you run into a serious problem. You can either get another loan - which is likely to be incredibly high interest due to your poor credit or riddled with fees (and that's if you can even qualify for the loan).

Or you can declare bankruptcy which is one of the worst things you can do for both your credit and your life.


This is a tremendous problem. Bankruptcy or another loan: Which is a better decision?
The first thing you need to look at is your budget. Another loan, of course, means another monthly payment. If your budget cannot afford another monthly payment, there is your answer already. If there is no way you can afford to even make a single monthly payment, then another loan is not an option. Yes, you can borrow so much that you can pay back your loan with your new loan, but that money is going to run out, and unless you find that you are going to come into money later, the money is going to run out far too quickly if you cannot afford to make another monthly payment. At that point you need to declare bankruptcy .

However, if you can afford to make the monthly payments but barely, then you have even more to think about. Bankruptcy, remember, is going to kill your credit, possibly permanently. The assumption should be that if you are going to declare bankruptcy you need to imagine that you are going to live the rest of your life without another loan again. That may not be the case, but that has to be what is in your mind.
If you think about in those terms, then bankruptcy should be considered in two situations:

• When you simply cannot afford another loan payment (which means that you are likely going to default on your next loan anyway and will have to declare bankruptcy then.
• When you will have a lot of extra money, meaning that if you run into financial problems later you will not need to take another loan to address the problem.

If neither of those are the case, then a new loan could be another option. However, before you even get a new loan or bankruptcy, make sure you have exhausted all other options and have already checked to make sure that things like extending loan payments and loan consolidation are not applicable options.


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