What Are the Alternatives to Filing Bankruptcy?

Before you make the decision to file for bankruptcy, you need to know the alternatives. Continue reading to see if these options can work for you.

Did you know the average American has $38,000 in personal debt?

Many Americans accrue thousands of dollars in debt they cannot pay off, as evidenced by about 741,000 people who filed for bankruptcy in 2020. If you’re dealing with crippling debt, but you’re not ready to file for bankruptcy, you came to the right place.

Read on to learn about the alternatives to filing bankruptcy.

Join a Debt Consolidation Plan

If you have a considerable amount of debt and you’re not ready to file for bankruptcy, one of the ways you can solve the problem is by joining a debt consolidation program.

The purpose of debt consolidation programs is to combine all of your expenses, such as credit cards and personal loans, into one single payment. Because debt consolidation typically offers lower interest rates, it’s a more manageable way for people to pay down their debts.

Many people choose a debt consolidation program because it lowers their monthly payments. There are a few different approaches to debt consolidation that you might want to consider.

Because many people need help to manage their debts, the first step is to seek support from a debt consolidation program. When you start looking around, you will find there are plenty of programs available in your community.

Keep in mind that some debt consolidation programs will help you for free. However, in other cases, you will have to pay a monthly fee for their services. If you’re struggling financially, you should choose a program that will help you for no charge.

Also, with many debt consolidation programs, you will have to agree not to take on new debt, as the purpose is to pay off all of your loans. Depending on the lender, they might choose to close out your accounts or leave them open.

The great thing about debt consolidation is you don’t have to worry about making multiple payments. All of your payments will be managed by the debt consolidation company.

Debt Settlement

Similar to debt consolidation, the purpose of debt settlement is to help you pay off your loans and avoid bankruptcy.

Although there are a few similarities, debt settlement requires a portion of your debt to be forgiven. Debt settlement also pays down your loans at a lower interest rate.

While you can try to negotiate your debt yourself, many people go through a debt settlement agency. The agency will get in touch with all of your credit card companies and negotiate a lower portion for you. If you succeed in settling your debts, you can stop collectors from calling and avoid bankruptcy.

However, you need to keep in mind the cons of debt settlement. While you can try your best to negotiate down the money you owe, your creditors might refuse to work with you. Also, if you violate the terms of the settlement, there can be fees, and the creditor might reinstate your debt.

Start Selling Assets

If you’d rather avoid debt consolidation and settlement because of the extra fees and impact on your credit, you can try liquidating your assets.

When you’re behind on your payments, or you want to pay down some of your debt, selling stuff you don’t need is a great alternative. For example, if you have an older car or motorcycle sitting in your garage, selling them can help you get the extra cash to bring your payments up to date.

Sometimes people underestimate the value of the items they have accumulated over time. Take the time to go through your belongings and create an inventory of possessions you can sell. You can get extra money if you sell items such as electronics, furniture, and jewelry.

Debt Consolidation Loan

When you’re ready to take care of your debts, you should look into getting a debt consolidation loan.

Once you are approved for the loan, you will receive a lump sum of cash to consolidate all of your debts. You will then have to only make a single monthly payment until your loan is paid in full. Many people choose to go this route because the interest rates are lower than a high-interest credit card.

Although debt consolidation loans are a great alternative for people, there are still some cons. These loans do have lower interest rates for the most part, but many of them come with origination fees. You might also be charged a fee if you choose to pay off your loan early.

Also, if you have average or poor credit, you might have to pay a higher interest rate. Before you commit to a consolidation loan, take your time to do your research and read the fine print.

Change Your Spending

If filing for bankruptcy is the last thing you want to do, changing how you spend your money can go a long way.

When was the last time you created a budget? If you have never lived on a budget, you will be surprised to see how changing your spending can help you financially.

Before you start paying off your debt, you need to understand how much money you earn and how you spend it. Start by creating a spreadsheet and writing down all of your sources of income.

You can list all of your living expenses in another column, such as rent/mortgage, utilities, food, and insurance. Once you have created a realistic spending plan and put money in savings, you can decide how much will go toward decreasing your debts. You will be surprised how much extra cash you have to pay off your loans once you make a budget.