Even if you’re at the end of your financial rope and feel like there’s nothing left to do but give in and start over, the prospect of bankruptcy probably terrifies you. There’s a good reason for this fear. Bankruptcy is a highly invasive, embarrassing and financially-devastating process that can affect your personal relationships and financial health for years on end.
For years, bankruptcy was the only acceptable means of escaping from serious debt. It was a necessary evil: Folks declared bankruptcy when it became clear that they could no longer outrun their obligations. In many cases, creditors would actually petition a court to force delinquent borrowers to declare bankruptcy.
While this still occurs on occasion, it’s less common than in the past. Today, most people voluntarily declare bankruptcy. If you’re just barely keeping up with your debts, you may be thinking about taking the plunge and accepting the consequences too.
Bankruptcy should be your last resort. There are plenty of simple steps that you can take to try to solve your debt problems on your own or with the help of a trusted partner. Read on to learn about five of the most common ways to avoid bankruptcy.
1. Self-Directed Debt Management
Self-directed debt management may help you regain control of your finances. The concept of debt management is simple: It involves paying down each of your unsecured debts beginning with your most expensive credit facility and ending with your least expensive loan.
Your debt management plan will demand discipline. You’ll need to continue making the minimum payments on each of your other debts while you’re focusing on your most expensive obligations. No matter how hard you try, you may not be able to muster the financial firepower necessary to stop your balances from growing further during this process.
Debt management may be more effective when combined with a frugal household budget. Start by thinking up common-sense ways to save on your day-to-day and month-to-month expenses. These might include turning off the lights and television before heading upstairs for bed and running full loads of laundry to cut your utility bills. If you aren’t doing so already, be sure to buy more generic foodstuffs and cleaning products at the grocery store as well.
Strengthen your budget further by looking for ways to increase your total household income. Pick up a weekend job to supplement your full-time salary or take advantage of a pre-existing talent to hire yourself out as a consultant or freelancer. Even a few hundred extra dollars per month might provide you with some financial breathing room.
3. Debt Consolidation Loans
You can try two managed methods of debt relief as well. If your debt load exceeds $10,000, shop around for a debt consolidation loan that you can use to pay off your existing creditors and transfer your disparate debts into a single fixed-rate credit facility.
Debt consolidation loans dispense with the financial clutter that can make it easy to miss payments or ignore collection notices. Unfortunately, they can be extremely expensive. Unless you have decent credit, your debt consolidation loan might actually cost more than your current basket of debts. What’s more, these products often take five to seven years to repay.
4. Credit Counseling
Credit counseling is known as a more consumer-focused debt relief option. Most credit counseling agencies are not-for-profit and maintain close ties with the lending industry, which increases their leverage in the interest-rate negotiations in which they’ll engage on your behalf.
However, their nonprofit tax status doesn’t make them affordable. Credit counselors’ fees may tack hundreds or thousands of dollars on to the cost of your debt. These added expenses may eat into the savings that they’re able to wring out of your creditors. Like debt consolidation loans, credit counselors’ repayment plans may last for five to seven years.
5. Debt Settlement
Your debts may demand a more aggressive solution than anything that you’ve tried thus far. It’s no accident that many financial experts recommend debt settlement as a superior alternative to bankruptcy.
Debt settlement is unlike other forms of managed debt relief for several reasons. It’s designed to go beyond the interest-rate tweaks common to credit counseling and reduce the total amount that you owe on your outstanding loans. Past debt settlement customers have seen their debts reduced by thousands of dollars using this method.
Debt settlement also takes less time than other forms of debt consolidation. Consolidation loans and counseling typically take five to seven years to produce favorable results. During this lengthy interim, any outstanding debts will continue to accrue interest. On the other hand, debt settlement takes just 24 to 48 months and involves no additional accrual of interest.
If you’re intrigued by the idea of debt settlement, pick up the phone and call today to learn more about the process. It could be the most important phone call of your life.