Many consumers become overwhelmed by debt slowly but surely, and they reach a point where bankruptcy seems to be the only solution to the problem they are trying to solve. However, they should also realize that bankruptcy will have a devastating affect on their credit score, and with that in mind, they should look for other alternatives to solve their financial dilemma. If one of the alternatives listed below will save your credit rating, you will want to use it, although clearing up your debt will be slightly more expensive or take a bit longer to accomplish.
Selling some of your assets
Sell anything you can do without, no matter how attached you are to the item, and use the funds to help settle your debts. Do this at the first sign that you are struggling to make your monthly payments to have the desired effect. For example, you can sell your jewelry, furniture and electronic gadgets on Craigslist or eBay, or prepare for a yard sale. This may seem to be a radical step to take, but it is inconvenient rather than impossible, and you can boost your morale by remembering that the present situation is only temporary and that you have found a good way to avoid bankruptcy.
Increasing your income
If your budget really doesn't include many extras, you can increase your earnings by taking on a part-time job in addition to your regular work. You may even be able to do this by using your home compute, following a flexible schedule, and making good use of your hobbies and skills as you decide what to do.
Negotiating with your creditors
Obviously, your creditors would rather receive a partial payment from you rather than nothing at all. Because of this, you should let them know that you are dealing with financial problems and would like to avoid bankruptcy. Make it clear that you want to pay the debt, and see if they will make things less difficult by lowering the interest rate or reducing your monthly payment. Many financial institutions have introduced so-called hardship programs for situations like this, but you have to be proactive and ask. Before you initiate this kind of program, be sure that the requirements will make it possible for you to reach your goal in a reasonable amount of time.
Working with a consumer credit counselor
If you aren't satisfied with the results from contacting your creditors, try seeking the assistance of a professional. Contact a consumer credit counselor who is used to dealing with creditors in order to have your interest rate and monthly payment reduced. The payments required by your debt management plan may seem formidable, but they are also temporary, and your overall financial situation will be better than it was.
If you choose this alternative, your credit counselor will analyze your financial situation, including the number of accounts, balance due, minimum payments and past due accounts, if applicable, along with your monthly income and expenses. Based on this information, the counselor will develop a debt management plan you can follow. This plan will be forwarded to all of your creditors for their approval.
After your creditors have agreed to the proposed plan, you will start making payments to your credit counselor, who will be paying your creditors according to the plan you have accepted.
Reaching a settlement with debt collectors
This is something you would want to avoid under normal circumstances, but that is not the case when you are facing bankruptcy. Take care of this yourself instead of contacting a debt settlement company, which could turn out to be a waste of both time and money. Concentrate on those debts that have been sent to collection or charged off, and be prepared to pay once an agreement has been reached.
See if your family and friends can help
Generally speaking, borrowing money from friends and relatives is something to be avoided. Trying to do this can create problems for others and damage relationships, but facing bankruptcy is an emergency situation. Determine exactly what you need and how much you can contribute to avoid bankruptcy. Once you've done that, you can consider borrowing the balance from family and friends, but when you do, approach them with a plan showing how you expect to repay them after your financial situation has improved.
Filing Chapter 13
In order to take this step, you must be prepared to clear up your debts within a specified time period. This may be something you will want to consider if you fail to qualify for Chapter 7 or have an asset that you want to keep. In addition, if you go over your budget carefully, you may be able to save money by car-pooling to work, eliminating satellite or cable television, or taking similar steps. By taking the time to scrutinize your expenses, it will be relatively easy to determine which items are true necessities and those that are not.