According to an analysis of U.S. household debt, credit card debt has increased by more than 6% in the past year and by more than 31% in the past five years. Although income has grown faster than the cost of living over the past decade, consumer debt—including debt on auto loans, student loans, and credit cards—continues to increase.
Debt can sometimes be so overwhelming that bankruptcy seems to be the only way out. However, bankruptcy has serious repercussions, such as its devastating impact on your credit score. It is always recommended to seek alternatives to bankruptcy before you file.
So the question remains, how to get out of debt without filing bankruptcy? And what are the alternatives to filing for bankruptcy? In this blog post, we’ll explore the top 6 alternative options to bankruptcy, so that you can consider all the paths available to you before making a tough decision.
How can bankruptcy be prevented on your own? If you are eager to avoid working without a third party, it’s always possible to sell whatever you can spare. The money you earn can be used to pay off your debts. However, to achieve success with this method, action must be taken as soon as you notice you can’t afford to make payments. Waiting until you’re behind on payments is not recommended, as it may become too late for you to catch up and avoid further action from your creditors.
For example, you can sell your car, household items, or jewelry. You can also sell your electronics, books, office supplies, and even toys. Get rid of everything you don’t need. That may sound drastic, but so is filing for bankruptcy. This option involves using all the money you get to settle your bills, including the mortgage and the car payment.
One of the most common alternatives to bankruptcy is to cut down your expenses. This option is only possible if you track your expenses to figure out how much money you spend each month. Putting together a budget is the quickest and easiest way to get a handle on your spending habits.
The key idea here is to curb your spending and put the money you save towards paying down your debt. To help you save, cut up your credit cards immediately and pay in cash for all purchases. With a firm budget and a plan to repay your debt with saved money, paying for essentials with only cash can help you stay on track and be mindful of where you make purchases.
Consider eliminating all spending beyond food, clothing, shelter, and transportation to and from work. Cutting expenses includes going without all the little luxuries you may be accustomed to, such as visits to the spa, cable TV, dining out, alcohol, cigarettes, gym memberships, and magazine subscriptions.
With this plan to avoid filing for bankruptcy, your primary goal is to dedicate as much money as you can each month to paying down your debt. This means cutting back dramatically on expenses and making serious sacrifices.
Debt consolidation is a financial strategy that merges multiple loans and debts into a single new lump sum loan, whichpaid off over time the same way multiple loans are paid off. The idea is to simplify and consolidate the debt into one area, making it more manageable and predictable.
Debt consolidation involves getting a loan from a bank, credit union, or online lender. The loan should be large enough to eliminate all the unsecured debt at one time. You will then have to repay the loan in monthly installments at an interest rate you negotiate with the lender.
This option to avoid bankruptcy sorts out the mess consumers face every month trying to keep up with several bills from several card companies and numerous deadlines. Instead, there is just one payment to one source, once a month.
However, while debt consolidation puts all of your debt into one place, it does not reduce the amount owed, and you will still have to pay interest on the new loan. It is also likely that the new loan will have to be secured with collateral of greater value, such as your house. This means that if you are unable to keep up with your monthly payments, the lending institution can repossess the collateral.
Whether or not this option is best for you will depend on your situation and the amount of debt you owe. Debt consolidation is often called bill consolidation or credit consolidation. Ideally, by consolidating debt effectively, you should be able to get out of debt faster and eventually improve your credit score.
Debt counseling helps you avoid bankruptcy by providing guidance on how to handle your credit. It involves exploring ways to repay your debts, set budgets, and manage your personal finances. Debt counselors usually arrange one-on-one sessions with clients that are customized to each unique situation.
For effective debt counseling, the counselor will look at all the financial information you provide. They will also help set up a new budget, taking into account your income and expenses. Finally, they’ll help you plot a debt repayment plan. Although you can get lower interest rates on some debts, credit counseling doesn’t reduce the original amount of the debt you owe. Its purpose is to help you set up affordable payment plans with a schedule for repayment, so that you have a more complete understanding of your financial situation.
Debt counseling is one of the more popular alternatives to bankruptcy among those who can afford the minimum monthly payments, or those whose debts aren’t too large. However, for those who are struggling to make minimum payments, or who worry about paying even more each month, debt counseling might not be the best choice.
Debt management provides strategic advice on how to successfully manage your current debt load. A debt management program is designed to help you pay off multiple creditors with one monthly payment. However, you need to pay a fee to enroll in such a program.
A debt management plan involves setting up monthly payments to your credit counseling agency who then pays your creditors. However, your monthly payment to the credit counseling agency could be as high or higher than your monthly minimum payments had been.
To create a debt management plan, a credit counselor will review your financial information and help create a budget that considers your income and expenses. While a debt management plan may lower your interest rate, it doesn’t reduce the original amount of the debt you owe. But you can set up affordable payment plans with a schedule for repayment.
Debt settlement involves teaming up with debt relief experts who will negotiate with creditors to greatly reduce the total amount owed. Debt settlement is unique among alternatives to bankruptcy in that it actually lowers the amount of debt owed. Debts are settled for less than your outstanding balance.
At CreditAssociates, we reduce your debt by negotiating settlements with your creditors or debt collectors. You can make monthly deposits into a savings account that are typically lower than the minimum monthly payments to the credit card companies. Your account is then used to help negotiate settlements with your creditors for less than your outstanding balances. It’s best to work with a reliable and trusted debt settlement company to maximize your savings.
With our debt settlement specialists, you can be debt-free in as few as 24 to 36 months. We have established relationships with most of the major creditor networks which allows us the ability to submit your accounts through our partnerships. This lays the groundwork for future settlement opportunities on your accounts, many of which you will receive before you have enough funds ready to fund settlement offers.
Debt settlement is ideal for high interest loans like credit card debt. It is not a solution for secured debts like a mortgage, auto loan, or home equity loan. In these cases, it’s best to explore other options on how to avoid bankruptcy. When you’re struggling with debt, a lower monthly payment combined with a plan to help you budget could be the best strategy for you.
If debt settlement sounds like the best option for you, request our free debt settlement consultation here. You can learn about this topic more in depth by reading our debt settlement vs bankruptcy article.
Working With Credit Associates
How to get debt relief without filing bankruptcy? There are rare occasions when bankruptcy is the best option for you, but it’s important to carefully consider all the alternatives before making that decision. Still not sure which path to choose to avoid filing bankruptcy? We can help.
Getting started with Credit Associates is as easy as picking up the phone and talking to one of our experts. Your path to financial freedom is just one toll-free phone call away. Call us today at 1-844-305-1209 or request a free consultation online.