If you’re overwhelmed by debt then you might think about filing for bankruptcy. This is a viable option for many people. However, it deeply affects you financial life. Therefore, people usually only turn to this option as a last resort. Before you go that route, make sure that you know the alternatives to filing bankruptcy.
Find a Way to Pay Down Debt
If at all possible, the best of all alternatives to filing bankruptcy is to pay down your debt. Of course, if you’re looking at bankruptcy, then this might feel impossible. But consider these options:
- Take a second job and work really hard for one year to pay down the debt.
- Sell off as many assets as you can. Use the money to pay off a portion of your debt.
- Downsize to a smaller home. Get rid of your car. Cut as many expenses as possible. Pay down your debt.
In other words, make sure that you exhaust all options for both saving money and earning more money. If you can avoid bankruptcy by paying down your debt, that’s always the best option.
Take Out a Low Interest Loan
If you’ve consistently paid your bills then you might have decent credit. If so, then you might qualify for a loan. For example, could you get a home equity loan or personal loan to pay off your credit card debt? If you can get a lower interest rate from a loan like this, then it’s a great way to consolidate your debt and make it more manageable. You might also see if someone will cosign for you in order to help you get the lowest possible rate.
Debt Consolidation / Debt Management Services
This is one of the most popular alternatives to filing bankruptcy. Basically, you work with a debt management company to handle all of your outstanding debt. They negotiate on your behalf with all of your lenders. Then you pay them a single monthly fee, which is considerably lower than what you’ve paid monthly to your creditors.
Once you begin working with the debt management company, credit collection calls will stop. You’ll begin to get your debt on track. However, be aware that if you fail to make your payments to this service, then you may end up owing more money to your creditors than you did before.
This is a good alternative to filing bankruptcy if you can’t afford your payments. But it’s got its flaws. Research this option carefully before proceeding.
If you’re about to file for bankruptcy but are looking at last-chance alternatives to bankruptcy then you might consider debt settlement. In this situation, you work with each of your creditors to lower the amount that you owe. Then you pay off that amount. This can deeply affect your credit for years to come. Moreover, it can have tax implications in the year of debt settlement. You’ll want to work with a lawyer if you decide to go this route.
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