Sunday, April 22, 2007

Debt Repayment Options Prior to Bankruptcy

Bankruptcy is a legal procedure consumers use to get out from under crushing debt and try to get a fresh financial start. However, bankruptcy can negatively affect your credit score for up to 10 years and prevent you from getting auto or home financing, according to the Federal Trade Commission website. Before you file for bankruptcy, investigate the other debt repayment options available to you.

Debt Consolidation

    Consolidating debt means combining your debt into one account and one monthly payment. You can use a personal loan, a home equity loan, a mortgage refinance loan or transfer your debt to a new credit account. If you need help consolidating your debt, consider speaking to a debt consolidation professional. You may be able to find debt consolidation assistance through a professional debt consolidation firm, your local bank or lending institution, or a certified public accountant.

Credit Counseling

    A credit counselor may be able to help you put together a plan to pay off your debt without having to file bankruptcy. The credit counselor creates a plan for you and you pay your debt through an account set up by the counseling firm, according to the credit experts at the Loan.com website. The credit counseling company may add a service fee each month to your payment and there may be fees to set up the account. Be sure you understand the fees before signing an agreement.

Negotiation

    You can contact all of your creditors and negotiate lowered payoff amounts and monthly payments that will allow you to pay your debt off without filing bankruptcy. Explain your situation to your creditors and ask them to work with you on paying off your obligations. Your creditors may realize that negotiating with you now is a better alternative than possibly having the debt lost to a bankruptcy filing. As with other debt repayment options, you can contact a debt negotiation professional if you do not feel comfortable negotiating with your creditors.

Refinancing

    You can try to save money on your monthly installment loan payments by refinancing your loans. Contact your loan companies and let them know that you are considering filing for bankruptcy. Ask them about the possibility of refinancing your loan to lower your monthly payment. You may be put on a long-term financing arrangement, but you will only be financing what is left on your loan. For example, say you paid $10,000 for a car three years ago and currently owe $5,000 on the loan. If you refinance that $5,000 with another five-year loan, you can lower your payments significantly.

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