Bankruptcy may seem like the only alternative when you're drowning in debt. Yes, bankruptcy can eliminate debts and free up your cash. A bankruptcy proceeding will, however, stay on your credit file for 10 years and reduce your credit score. Rather than file bankruptcy to discharge your debts, consider ways to get rid of debt on your own.
Discuss Settlement Options with Creditors
Creditors don't want you to file bankruptcy because they'll likely never recoup the money owed to them. If considering a bankruptcy to eliminate debts, contact each of your creditors beforehand and negotiate a debt settlement which allows you to pay back a percentage of the money owed. Creditors agree to accept the smaller amount to satisfy the debt, and they stop collection attempts. Knowing your plans to file bankruptcy may prompt a creditor to allow a debt settlement. In their eyes, something is better than nothing.
Pay Off Debt Gradually
Bankruptcy is an easy fix for debt problems. You don't, however, have to file bankruptcy to get rid of high debts. It can take years to pay off high balances. But in the end, you'll be debt-free without a bankruptcy blemishing your credit report. Start by adding up all your debt balances. Next, review your budget to determine how much you have extra each month. Divide extra income by your balances to learn how many months it will take to pay off debt. With $300 extra dollars a month, it will take about 66 months (five and a half years) to pay off a $20,000 credit card.
Modify Living Habits
Many people do not want to downsize their life and get rid of their material possessions. But if an expensive lifestyle contributes to high debts, now's the time to face reality and alter your living and spending habits. Start by downsizing your cars and house. Sell your big house and move into a cheaper rental or purchase a less expensive property. Trade in your car for one with a lower car payment. Next, go through your house and look for personal items to sell. Drastic measures of this sort can save you money each month and create additional income. Put extra money toward debt payments to avoid a bankruptcy
Generate Extra Income
Living off credit cards and impulse spending can play a role in debt and bankruptcy. When your full-time employment isn't enough to pay down debts, perhaps it's time to sacrifice your free time and acquire a second job on weeknights and weekends. If you're self-determined, look into starting a home-based business to create additional income and help eliminate debts without a bankruptcy.
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