Avoid Filing For Bankruptcy And Still Get Out Of Debt
Filing for bankruptcy is a process that provides major relief from debt problems, but comes with steep consequences at the same time. When going through bankruptcy, you should expect your credit score to be damaged significantly. It may difficult to get credit again in the future and if you qualify for credit, it will be at much higher interest rates. Because of these issues with filing bankruptcy, many would prefer to handle their debt in another way. Luckily, there are many alternatives for those who do not wish to go to the extremes of filing for bankruptcy.
Settling Your Debts
One of the most popular alternatives to bankruptcy is debt settlement. With debt settlement, your account is closed by the creditor in exchange for providing a lump sum of cash. The creditor writes off the rest of your balance while you get by with paying less than what you originally owed. This strategy works well because it allows you to save money on the total amount that you owed, but you need a lump sum of money to make it work.
Another potential drawback of this strategy is that it will affect your credit negatively. The creditor will report your account to the credit bureaus and other creditors will be able to see that you did not pay in full. This will make it difficult to get credit again in the immediate future.
Debt Consolidation combines and consolidates various credit accounts into a single package.
Another option for you to consider when you need to avoid bankruptcy is debt consolidation. With debt consolidation, you put all of your various credit accounts into a single package. You bundle all of your accounts into one by borrowing money and then using that money to pay off your debt. After you pay off your other accounts, you are left with a single account. In many cases, using this strategy can help you save money on interest because the interest rate on the new loan can be lower than the rates you were paying. Another advantage of using debt consolidation is that it allows you to only make one payment every month instead of multiple payments.
When looking for debt relief, another option that you may want to consider is credit counseling. With credit counseling, you work with a credit counseling agency and enter into a debt management plan. With the debt management plan, the credit counseling service negotiate with your creditors to lower your interest rates. You can then make a single monthly payment to the credit counseling service. Your creditors will then be paid by those who run the service. This is a more long-term approach than debt settlement, and it will not hurt your credit scores. It will save you thousands of dollars on interest compared to paying down your credit cards under normal circumstances.
An approach that you can take by yourself is the debt snowball. With the debt snowball method, you make minimum payments on all of your credit accounts except for the account that has the smallest balance. On that account, you’ll pay as much as you can afford each month. Once you have that account paid off, you then put the rest of your money each month toward paying off the next smallest account. By continuing the cycle, you will eventually pay off all of your accounts. With this strategy, you create momentum to pay off your outstanding debts, and you do not have to borrow money from anyone to make it work. Your credit score should not be damaged, and your debt will be paid off within a reasonable amount of time.