Filing for bankruptcy is a sign that you can’t pay your debts, but it should be your last option. Before going through this process, it is best to try out a few alternatives and prevent the damage it will cause to your credit report.
1. Cut Your Expenses
If you want to avoid filing for bankruptcy, then you have to cut your expenses. Since you’re running on a tight budget, you have no room to accommodate excesses. You should only pay for basic items. No cable, no holidays, no huge cell phone plans, and you should do the cooking yourself until you’ve settled your debt. Cut down on unnecessary food, and drink healthy tap water. Instead of visiting a barista for your coffee, brew the coffee at home. Don’t spend beyond your budget. Drastic times call for drastic measures.
2. Get a Second Job
Nowadays, many people take on a second or even third job in order to make ends meet. Adding more streams of income to your earnings can help you avoid bankruptcy. However, it is advisable not to spend the extra earnings recklessly. You’re working towards achieving a specific goal, which is to pay your debts. However, having an additional stream of income will definitely require a lot of time. You may have to make sacrifices, like spending less time with your loved ones. Of course, it’s a difficult decision but remember this situation won’t last forever. It’s best to tackle the issue with all you’ve got now to avoid bankruptcy if possible. In the end, your efforts will pay off.
3. Debt Consolidation Loan
Another great option to avoid filing for bankruptcy is a debt consolidation loan. This option is only available to individuals with a good credit history. Alternatively, you can request a friend or family member to be a signatory to a debt consolidation mortgage. Also, if you have equity in your house, you may be eligible for a second mortgage. Use the loan to settle your debts that attract a high-interest rate. By so doing, you can significantly reduce the interest you are paying, so you can pay down debts faster.
4. Debt Settlement
This is a great option for those with old debts. In a debt settlement, you don’t pay the entire amount owing to your creditors. If your debts are more than a year old, your creditors may be willing to agree to the terms of a debt settlement. This is a great option if you can pay off the settlement at once.
5. Credit Counselling
If you don’t have the money to pay the lump sum at once, you can try a debt management plan. A non-profit counsellor will schedule a meeting with your creditors and discuss a plan where you can settle the debts. A debt management plan comes in handy if you have the means to settle your debt but can’t afford the high-interest rate. Your creditor may be ready to reach a compromise in order to get the debt paid in full.
Not every debt situation warrants filing for bankruptcy. These tips may help you avoid it.