Chapter 7 bankruptcy is a legal option that provides debt relief, but your question may be, “Should I file bankruptcy?”
Did you take out a loan with a solid repayment plan in mind but everything changed, and now you are sinking into debt? Have you fallen behind on your debt payments? Are you unsure of how you can get back on top of your payments?
The first thing you can take is a “Should I file bankruptcy quiz” that will help you understand the qualification and cost estimate for Chapter 7 bankruptcy.
Next, if you are in debt and the interests keep adding up with no or low income, your debts may keep growing. Debts can be overwhelming, and they can get more frustrating with frequent creditor collection actions.
Fortunately, there are numerous debt relief options to help you manage debt and turn your financial life around. While filing for bankruptcy can help, most people avoid it. Filing bankruptcy can help discharge your debts. However, it can also impede your chances of getting loans or make it hard for you to rent by negatively impacting your credit score rating. Besides, not all debts can be discharged.
Statistics from Supreme Court Chief Justice John Roberts show a drop in bankruptcy filings from 1.6 million cases in 2010 to 770,000 cases in 2018. The decline in bankruptcy filings indicates people opt for alternative debt relief options. So, which are these options?
1. READ FIRST
Before opting for any debt relief option, you need to read first. Understand the various options available, see if you qualify, and then choose the best option. Fortunately, there are debt relief calculators you can use to compare the cost, advantages, and disadvantages of different debt relief options. So, the calculator can help provide specific results to your financial information and shed light on the best debt relief option.
Firstly, you can use this 11 word phrase to stop debt collectors, but here are some alternatives to bankruptcy.
2. Debt Relief (National, Turbo Debt)
National Debt Relief and Turbo Debt have thousands of positive reviews for debt relief, but should you consider debt relief?
Often known as debt adjustment, debt settlement is a debt relief option you can choose instead of filing bankruptcy. It is a suitable option if you have fallen behind on your payments. In debt settlement, you involve a third party company, the debt settlement company, to meet and negotiate with your creditors so that they can allow you to pay less than you owe them.
When considering debt settlement, you need to have a lump sum to pay off your creditors if they agree to settle. This option has its advantages and disadvantages, which you need to consider before contracting a debt settlement company. The main downside is that debt settlement can negatively impact your credit score, making it hard to obtain loans and mortgages.
You should also know that although debt settlement is enticing since you will be paying less than you owe, it could take as long as three years for the settlement process to be complete. Also, many individuals have had varying experiences with debt relief companies such as National Debt Relief.
Other disadvantages include;
- Despite the debt settlement negotiation, you will need to pay some part of the debt since you have to honor part of it. In advertisements, most debt settlement companies say you might pay an insignificant amount. But this is rarely the case. People have paid as much as 75% of what they owe, so the figure your creditors agree to may not be as negligible as companies advertise.
- Not all creditors will accept debt settlement. Besides, there is no law obligating creditors to settle a debt. So, you cannot take any legal action against them should they refuse.
- After paying a proportion of your debt, you also need to pay the debt settlement company. Usually, their charges are between 15% and 25% of the amount they helped you save. Additionally, the government considers this amount as income, and thus, the amount will be taxed as you file your next returns.
The above disadvantages shouldn’t discourage you. A debt settlement plan helps you lower the amount you pay your creditors. It can also help reduce outstanding interest rates on your loan. Additionally, a debt settlement plan can help create a strategic and manageable plan to settle your debt between 2 and 4 years instead of 9 years. While debt settlement can negatively affect your credit rating, the effects will not be as severe as those caused by filing bankruptcy.
In all of these options, you may want to consider the reviews. For example, you can find Turbo Debt reviews to see experiences of those who have worked with Turbo Debt.
3. Debt Payoff Planning
You also have the option of a debt payoff plan. Debt payoff planning analyzes all your debts and organizes the debts in a structured and consistent routine which you can easily pay. Since debt is often overwhelming, a debt payoff plan makes it more manageable by considering your income, debts, and monthly budget. However, debt payoff planning is only ideal if you have not fallen far behind on your payment and if you have some income to make minimum payments on your debts. Here are three steps you can follow in coming up with a debt payoff plan;
a. List All Your Debts
How many outstanding debts do you have? Listing your debts helps you know how much debt you have. Next, find out your debt-to-income ratio. You can get the ratio by getting your total debts, subtracting the mortgages, and then making it a percentage of your gross annual income. The ratio will shed light on how much debt you have and what it will take to get you out of debt. You can use a debt payoff application to help in your payoff journey.
b. Make Better Financial Decisions and Adopt New Patterns
A common cause of debt is bad financial habits. If you are an impulse buyer, a gambler, or a terrible spender, you need to adopt new patterns and make better financial decisions to avoid getting back in debt. The best financial decision is to spend and live within your means.
Additionally, you should stop taking debts in anticipation of a future amount, like a salary. Taking loans in anticipation of a salary or another income could become disastrous if you lose your source of income.
c. Try As Much As You Can to Increase Your Income and Make Enough to Repay Your Debt
The only way out of debt is to repay it. Under debt payoff planning, you need to ensure you get enough to offset your debt. You can increase your income by spending less than you currently do to leave more to channel to debt. While it may seem hard, with the right mindset, you can achieve it. Some tricks to increase your income and pay off your debt fast include;
- Get a higher-paying job. It can be putting more effort at work to secure a promotion or applying for better-paying jobs as you continue working on your current job.
- Selling stuff, you don’t use or need anymore: Do you use everything in your house? Probably not. You can organize a garage sale or put up items for sale on sites like eBay and Craigslist to get rid of things you don’t use and get fast cash. You can declutter the entire house to identify what you can sell. However, this is short-lived once you run out of things to sell. But, you will have gained more.
- Sign up for an extra job, or put in longer hours at work. You can try numerous jobs like waiting tables, babysitting, freelance writing, or driving for Lyft or Uber to boost your income and repay your debts.
4. Debt Management
Debt management offers a way to control your debt through planning and budgeting to lower your debt as you work on eliminating your debts.In debt management, a non-profit company will help you negotiate for lower interest rates with your creditors. It is an ideal option if you’re not behind on your payments and are majorly dealing with credit card debts.
Once the debt management service provider consolidates your debt, you can pay one monthly payment less than the total payments you were making separately earlier. Besides lower interest rates, debt management can also increase your repayment duration and trim the debt.
Debt management is a debt relief option that you can settle for to reduce your monthly payment, and in the long run, it will save you a lot that you would have spent on interest and fees. Here is how a debt management plan works;
- It will take between 36 and 60 months to repay your debts fully
- Once the plan takes effect, you cannot apply for additional credits
- A later payment could result in you losing progress on the lower interest rates and decreasing debt
Debt management is a better option compared to debt settlement. However, the debt management company also charges a fee. Before committing, review how debt management compares to debt settlement to make an informed choice according to your debts and financial situation.
Check On Your Income and Expenses and Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a common option, but you may want to consider taking a Chapter 13 calculator to help you estimate the monthy payment for that option. Is your plan payment affordable?
The only way to overcome debt is to keep track of your income and expenses. Always have a budget and stick to it. Also, you should adopt good financial habits, like living within your means and only taking debt when necessary.
If you find it cumbersome to create a budget or track your income and expenses using the old-fashioned pen and paper method, you can download a spending tracker app. Tracking keeps you on your toes and shows where you spent your money. Therefore, it makes you mindful, and you will notice small financial victories.
If none of these options sound like they could help your situation, it could be time to consider filing for bankruptcy. Before getting started, you will want to get all the information you can for your specific location.
We have discussed alternative debt relief options other than filing bankruptcy. Now, the ball is on your court. Identify an option that works best with your debts and current financial situation. Consider how far behind your payments are when making your choice, alongside other factors.