How to Find an Alternative to Bankruptcy
Meet with a credit counselor., Discuss debt consolidation., Consider creating a repayment plan with your creditors., Ask about debt management plans., Research debt settlement companies.
Step-by-Step Guide
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Step 1: Meet with a credit counselor.
To fully explore bankruptcy alternatives, you should find a reputable credit counselor.
Schedule a meeting with them and ask what financial information you need to bring to your credit counseling session.
Credit counselors typically charge a small fee.
You can find credit counselors by contacting your credit union, local housing authority, military base, or university.Get a description of services before signing up with them.
A legitimate credit counselor should not ask for personal information before explaining their services.
Also check how the agency pays its credit counselors.
Some might give bonuses if they sign people up for debt management.
You want your counselor to exercise independent judgment, so avoid credit counselors who pay their employees in this manner. -
Step 2: Discuss debt consolidation.
One bankruptcy alternative is to total all of your debts and then take out a personal loan for that amount.
You pay off these smaller debts.
If the loan has a lower interest rate, you can lower your monthly debt payments.You can get a personal loan from a credit union or bank.
If your credit is bad, you should contact credit unions first.
Alternately, you could roll your debts onto a credit card using a balance transfer.
Many credit cards have an initial 0% APR period that lasts 12-18 months.
If you don’t pay off the balance at the end of the promotional period, you will have to pay interest.
However, a balance transfer can give you breathing room to get your debt under control.
You could also get a secured loan, such as a Home Equity Line of Credit (HELOC).
You should probably avoid doing this.
With a secured loan, you risk losing the collateral if you can’t make payments. , You might also call up your creditors and ask if they can help you out.
Explain why you have fallen behind on your debts.
For example, you might have become sick or lost your job.
Many creditors are willing to modify your repayment schedule so that you don’t default.Some credit card companies might allow you to temporarily stop making payments, or they might reduce the amount you owe for a few months.
Once you get back on your feet, you return to your regular repayment schedule.
Your unsecured creditors have an incentive to work with you.
In a Chapter 7 bankruptcy, they will be completely wiped out.
Accordingly, it is in their best interest to change the repayment schedule to something that works for you. , You might be able to enroll in a debt management plan with your credit counselor.
With debt management, your counselor negotiates with creditors for a lower interest rate or to waive penalties and fees.
You make one payment to your credit counselor, who distributes payments to each of your creditors.It can take several years to complete debt management, and you must make regular payments.
If you miss payments, your creditors will probably not continue with the plan.
Your counselor probably can’t reduce the amount you owe in total.
Accordingly, you will need to create a budget and stick with it in order to complete your debt management plan. , Debt settlement is a form of negotiation in which you stop making payments to your creditors.
Instead, you save up as much money as you can.
After a certain amount of time, you approach your creditors and offer to settle your debts.
If successful, you might only pay 50% or so of your debt, with the creditor writing off the remainder.
Debt settlement is risky.
A creditor is not required to settle your debts for less than what they are worth.
Also, if you stop payment, your credit score will be wrecked and a creditor might sue you.Debt settlement can take years to complete.
You must save up enough in order to approach your creditors with a lump sum.
Debt settlement typically only works with unsecured debts, such as credit cards.
It rarely works with other kinds of debt (such as secured debts like your mortgage or car loan).
You can handle debt settlement on your own, or you might want to work with a company if you don’t like to negotiate.
Debt settlement companies will require that you make monthly payments to them and will store your money in a savings account.
Thoroughly research any debt settlement company.
Make sure the company has a solid track record and no complaints from consumers about being ripped off. -
Step 3: Consider creating a repayment plan with your creditors.
-
Step 4: Ask about debt management plans.
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Step 5: Research debt settlement companies.
Detailed Guide
To fully explore bankruptcy alternatives, you should find a reputable credit counselor.
Schedule a meeting with them and ask what financial information you need to bring to your credit counseling session.
Credit counselors typically charge a small fee.
You can find credit counselors by contacting your credit union, local housing authority, military base, or university.Get a description of services before signing up with them.
A legitimate credit counselor should not ask for personal information before explaining their services.
Also check how the agency pays its credit counselors.
Some might give bonuses if they sign people up for debt management.
You want your counselor to exercise independent judgment, so avoid credit counselors who pay their employees in this manner.
One bankruptcy alternative is to total all of your debts and then take out a personal loan for that amount.
You pay off these smaller debts.
If the loan has a lower interest rate, you can lower your monthly debt payments.You can get a personal loan from a credit union or bank.
If your credit is bad, you should contact credit unions first.
Alternately, you could roll your debts onto a credit card using a balance transfer.
Many credit cards have an initial 0% APR period that lasts 12-18 months.
If you don’t pay off the balance at the end of the promotional period, you will have to pay interest.
However, a balance transfer can give you breathing room to get your debt under control.
You could also get a secured loan, such as a Home Equity Line of Credit (HELOC).
You should probably avoid doing this.
With a secured loan, you risk losing the collateral if you can’t make payments. , You might also call up your creditors and ask if they can help you out.
Explain why you have fallen behind on your debts.
For example, you might have become sick or lost your job.
Many creditors are willing to modify your repayment schedule so that you don’t default.Some credit card companies might allow you to temporarily stop making payments, or they might reduce the amount you owe for a few months.
Once you get back on your feet, you return to your regular repayment schedule.
Your unsecured creditors have an incentive to work with you.
In a Chapter 7 bankruptcy, they will be completely wiped out.
Accordingly, it is in their best interest to change the repayment schedule to something that works for you. , You might be able to enroll in a debt management plan with your credit counselor.
With debt management, your counselor negotiates with creditors for a lower interest rate or to waive penalties and fees.
You make one payment to your credit counselor, who distributes payments to each of your creditors.It can take several years to complete debt management, and you must make regular payments.
If you miss payments, your creditors will probably not continue with the plan.
Your counselor probably can’t reduce the amount you owe in total.
Accordingly, you will need to create a budget and stick with it in order to complete your debt management plan. , Debt settlement is a form of negotiation in which you stop making payments to your creditors.
Instead, you save up as much money as you can.
After a certain amount of time, you approach your creditors and offer to settle your debts.
If successful, you might only pay 50% or so of your debt, with the creditor writing off the remainder.
Debt settlement is risky.
A creditor is not required to settle your debts for less than what they are worth.
Also, if you stop payment, your credit score will be wrecked and a creditor might sue you.Debt settlement can take years to complete.
You must save up enough in order to approach your creditors with a lump sum.
Debt settlement typically only works with unsecured debts, such as credit cards.
It rarely works with other kinds of debt (such as secured debts like your mortgage or car loan).
You can handle debt settlement on your own, or you might want to work with a company if you don’t like to negotiate.
Debt settlement companies will require that you make monthly payments to them and will store your money in a savings account.
Thoroughly research any debt settlement company.
Make sure the company has a solid track record and no complaints from consumers about being ripped off.
About the Author
Christina Powell
A passionate writer with expertise in pet care topics. Loves sharing practical knowledge.
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