Economic times are tough. Home values have plummeted, a recession is looming, and gas costs are rising. If you're at the end of your financial rope, you may want to think about a debt consolidation loan as an alternative to filing for bankruptcy.

Is your glass half empty or half full? Your answer will cast you as either an optimist or a pessimist. Ask anyone about the economy, and the prevailing mood is that our collective glass is half empty, at best, and losing volume with every passing moment.

People in serious financial trouble are acting on these pessimistic feelings. Without positive economic prospects, many are considering taking drastic actions, including filing for bankruptcy. This legal proceeding may be a way to stop the bleeding, but it can inflict serious long-term damage. A more prudent move is a debt consolidation loan.

Bankruptcy: No more good old days

Bankruptcy laws have tightened over the years. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was designed to prevent people from using bankruptcy as an easy way out. As a result of the legislation, most debt is required to be repaid to creditors. The full relief formerly guaranteed by Chapter 7 bankruptcy has been eliminated, and individuals now need to file Chapter 13. Eventually, you'll be required to pay back the entire principal.

Filing bankruptcy can have a damaging effect on your credit score. too. Most mortgage lenders won't consider extending you a home loan until at least two years have passed since your bankruptcy filing. In time, this type of scrutiny will lessen, but your life will be dramatically altered in the interim.

Debt consolidation: A viable alternative

Americans do have an alternative to the Draconian act of bankruptcy. A debt consolidation loan is a way to pay off your debtors. You can take it as either a personal or home equity loan, and it will lump together all of your outstanding debts into a single debt with one interest rate. The term of the loan is generally extended, allowing for lower monthly payments on your overall debt.

This should provide the kind of short-term relief that you need to keep the collection vultures at bay. To complete your financial recovery, you'll need to change your money management habits and lifestyle, however. Digging your way out from under a mountain of debt will require setting up a budget and living within your means. It will require discipline and cutting back. In the long run, you'll come out in good shape.

The bankruptcy laws once provided more leniency for people in deep financial trouble. Recent legislation hasn't been as forgiving, and debts aren't as easily forgiven. Filing for bankruptcy can also have a devastating effect on your credit score. It makes more fiscal sense to use a debt consolidation loan before filing for bankruptcy. You'll get some short-term relief, and you can use the leverage to create a winning long-term financial plan.