For many people, debt builds up slowly, and over a long time. Small loans may seem manageable at first, but as one loan is added to another, debt can accumulate. When this happens, making monthly payments becomes challenging.

There are other reasons why paying back several small loans can be troublesome. Making payments on several small loans can be inefficient; the minimum payments can add up to more than the homeowner would pay on one large loan. Also, forgetting to pay one or two loans is easy to do when payment due dates are scattered throughout the month.

When loans become unwieldy, some people turn to debt consolidation. Others turn to bankruptcy. Knowing the differences and pros and cons between these two options can help you decide what is right for you. Here's what you need to know.

Debt consolidation: pros and cons

Debt consolidation is the use of a larger loan to pay off smaller loans. Some homeowners consolidate their debt through a home equity line of credit; others get a second mortgage.


  • Easier to make payments. Once your debt is consolidated, you'll enjoy one larger payment rather than many smaller payments. It's easier to remember to pay your debts and easier to make the payment.
  • Save your credit. Debt consolidation can be good for your credit, because it requires you to pay back the money over time.
  • Lower interest rate. Debt consolidation is most effective when the borrower gets a lower interest rate for the large loan, compared with the interest rates for the smaller loans.
  • Responsible way to pay off debt. When you borrow money and accumulate debts, you agree to pay them back. Debt consolidation enables you to pay your debts responsibly.


  • Debt consolidation doesn't always work. Sometimes debt consolidation just leads to one large loan that homeowners find difficult to pay.
  • Debt is not eliminated; it is only made more manageable. For a homeowner who is in financial crisis, debt consolidation may not be enough to pull through.
  • Paying debts can take time. The term for paying off large debts can be long and slow.

Bankruptcy: pros and cons

Bankruptcy is a last resort for people experiencing unmanageable amounts of debt. The process of legal debt forgiveness can help those who are unable to pay their debts and who need a fresh start. In fact, bankruptcy is often called just that: a financial fresh start.


  • Get your life back. Once the bankruptcy process is complete, the person who filed for bankruptcy can pay current expenses without the added burden of paying debts from expenses long past.
  • Move on from debt. Excessive debt prevents people from saving money, making home improvements, buying a new home and making important life decisions. Bankruptcy allows people to live the rest of their lives without a cloud of debt hanging over them.
  • Maintain quality of life. People who struggle to pay their bills often have a lower quality of life. They may buy less food, go fewer places, invest less in education and make other financial trade-offs that make life less enjoyable. Bankruptcy can fix that problem.


  • Stays on your financial record. Bankruptcy is a serious step that can have a negative impact on your credit score for seven to ten years.
  • Can be expensive. Filing for bankruptcy is a legal procedure with legal expenses.
  • Hurts your pride and self-confidence. Filing for bankruptcy is a serious step that many people feel bad about taking.

Which one is right for you?

If you're trying to make the choice between bankruptcy and debt consolidation, start by considering debt consolidation: How much money would you need to borrow to pay off your current loans? How much would it cost to pay back a loan of that size?

Contact multiple lenders to determine whether debt consolidation is a realistic option for you. Find out what kind of loan you would qualify for, and how much that loan would cost per month. Create a budget to determine whether you can afford a loan of that size.

Each lender will have a different loan offer. Payment terms will vary from one lender to the next. Ask questions such as how much will the loan cost each month? Is the interest rate fixed or variable? How long is the payment term? Use the information to determine which loan, if any, is right for you.

If debt consolidation is not feasible, bankruptcy may be the only option. Contact lawyers in your area to determine the cost of filing bankruptcy, how long it would take to file bankruptcy, when the process would be complete, and what kind of impact this would have on your credit rating and for how long.

Bankruptcy laws vary from one state to another. In some states, you may be allowed to keep your house. In other states, you may be forced to give up your home. Talking to a lawyer can help you decide whether the negative impact of bankruptcy would be manageable.

Use a Figure HELOC to consolidate your debt

It's not unusual for homeowners to use a home equity line of credit (HELOC) for debt consolidation. Our streamlined, online application process is simple and fast. If approved, funding could occur in as few as five days**. Head on over to our website to find out more about how to apply for a HELOC through Figure.

**Five-day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing, or if the 5-day period includes a weekend or holiday.