Three Financial Solutions To Try Before Filing For Bankruptcy
If you are absolutely up to your eyeballs in debt, filing for bankruptcy can be a way out. However, it does have its consequences. The bankruptcy will appear on your credit history for 7 - 10 years (depending on the type of bankruptcy you file), and the process of going through bankruptcy is time-consuming and stressful, too. Thus, it is worth your while to try a few other possible financial solutions before you resort to bankruptcy. Here are some ideas to explore.
Consolidate your debt.
Trying to make 15 different payments on 15 different debts with various interest rates can be overwhelming. If you have a large number of debts, you may be able to consolidate them into one loan. Then, you will only have one payment to make each month. This single payment will often be lower than the combination of your original payments, since consolidation loans often offer lower interest rates and fewer fees. Plus, you'll have an easier time budgeting and ensuring you set the money aside if it is for one payment, rather than many.
If all of your debt is credit card debt, consolidation should be very easy. Identify your card with the lowest interest rate, and use it to pay off the other cards with higher interest rates. Most credit card companies are happy to have you transfer your debt to their accounts, since it means they will be receiving your interest, rather than other companies. If you call your credit card company and say you want to consolidate, they should be able to walk you through the process.
If you have debt from multiple sources, such as student loans, car loans, and personal loans, consolidating is a bit harder. Visit a bank that you have a history with, and ask about consolidation loan options. They can help you find a loan option that results in more manageable bills each month.
Move to a cheaper home.
What are you paying for instead of paying down your debts? For many people, the answer is "a home." If you have a high (or even moderately high) rent or mortgage payment, you are throwing more money towards your housing expenses than is necessary, and it is leaving you without the cash needed to pay off your loans. A simple way to fix this problem is to find a cheaper place to live.
This might mean selling your home and moving into a small apartment for a year or two while you pay down debt. It might mean moving back in with your parents for a few years. If you have extra rooms in your home, you could even effectively reduce your housing expenses by taking on a roommate and having them pay a portion of the rent or mortgage. If you can weasel enough money out of your housing costs to cover the bills you have not been paying up to this point, this is probably a better choice than filing for bankruptcy since it won't affect your credit score.
Work with a budgeting guru or financial advisor.
It's possible that you do have enough money coming in to pay off your debts, but that you're not spending or budgeting it wisely. It's tough to see errors in your own spending. However, an experienced financial advisor or budgeting guru will be quick to identify the errors of your ways. Such a person can point out areas where you can decrease spending and ways you might be able to earn extra income. They can work with you to create a specific, detailed plan for getting out of debt.
Note that successfully working with such a financial advisor may require you to make some uncomfortable changes in your life. You may find that you need to sell your car and get a cheaper one, or that you need to stop shopping at the high-end grocery store and taking guitar lessons, for instance. However, making these sacrifices will feel worthwhile when you finally see those debt numbers decreasing.
If you try reducing your housing expenses, consolidating your loans and meeting with a financial advisor -- but you're still not able to make payments -- then it is really time to seriously consider bankruptcy. Meet with a bankruptcy attorney, such as those at Morrison & Murff, to learn more about the process and what it might mean for your future.