Bankruptcy is almost always the absolute worst-case scenario when dealing with financial trouble, so generally speaking, debt consolidation is better.

But as Rebecca Bunch says in the Crazy Ex-Girlfriend Season 1 theme song: “The situation’s a lot more nuanced than that.”

Before committing to either bankruptcy or debt consolidation, it’s important to understand the differences and learn the pros and cons of each.

Is debt consolidation the same as bankruptcy?

Cement vs. concrete. Yam vs. sweet potato. Great Britain vs. the United Kingdom.

What are “things that you thought were the same but are actually different?” (RIP, Alex).

While debt consolidation and bankruptcy both are forms of debt relief, they’re not the same thing. We’ll leave it up to you to figure out the differences between the others.

What is debt consolidation?

Debt consolidation is when you combine multiple debts into one streamlined monthly payment, ideally with a lower interest rate, either with a personal loan for debt consolidation, balance transfer credit card, or alternative method.

Credit cards, medical bills, and other unsecured debts tend to have higher interest rates than secured debts because there’s no collateral involved. Using some form of debt consolidation can help you pay off your debt more quickly and save money on interest in the long run.

Debt consolidation pros and cons

The pros and cons of debt consolidation can vary slightly depending on which form of debt consolidation you choose, but here are the common advantages and disadvantages of consolidating your debt.


  • Speed up the debt repayment process
  • Make debt repayment easier with one payment
  • Improve your interest rate (usually)
  • Boost your credit score (maybe)


  • Doesn’t address bad spending habits, i.e., the root problem
  • Can’t always get a lower interest rate
  • Possible fees
  • Difficult to qualify for with lower credit scores

What is bankruptcy?

Look, you don’t want to take your financial advice from Creed Bratton. You can’t just change your name to Lord Rupert Everton and become a shipping merchant who raises fancy dogs. And filing for bankruptcy is a bit more complicated than yelling “I DECLARE BANKRUPTCY!” in front of your employees.

Bankruptcy is a legal proceeding that helps people and businesses who are no longer able to repay their debts by liquidating their assets or creating a repayment plan, essentially wiping the slate clean. (Like the witness protection program, except not really).

There are several different types of bankruptcy, all of which are handled in federal courts per U.S. Bankruptcy Code. If you’re filing for bankruptcy, you are limited to Chapter 7 and Chapter 13 bankruptcy, depending on your individual circumstances.

Chapter 7 vs. Chapter 13 bankruptcy

With a Chapter 7 bankruptcy, there’s no repayment plan. Instead, this involves liquidation, which means your nonexempt property is sold and the funds are distributed to creditors that you owe.

Chapter 13 bankruptcy, on the other hand, allows for an adjustment of debts if you have a steady income and if unsecured and secured debts are less than $394,725 and $1,184,200, respectively. Under this code, you can keep your property and can repay your debt over time, typically three to five years.

Bankruptcy pros and cons

While filing for bankruptcy generally is a last resort, there are advantages and disadvantages.


  • Typically stops foreclosures, garnishments, and collections
  • Usually reduces your total debt owed and shortens your repayment term (Chapter 13)
  • Eliminates all dischargeable debt in most cases and is resolved within months (Chapter 7)


  • Hurts your credit score
  • Stays on credit report for up to 10 years
  • Not all debts (like child support, alimony, student loan, and tax debt) are easily discharged
  • Doesn’t protect cosigners