The topics of debt and bankruptcy are often highly debated issues, with “experts” on both ends of the spectrum. Some will tell you that if you ever have a small amount of trouble paying off debt, then bankruptcy is your answer! On the other hand, there are some who say that bankruptcy is equivalent to theft and should never be allowed.
As with most things, the answer lies somewhere in between. However, there are plenty of things that one can do before choosing to file for bankruptcy…
Cut Out All Unnecessary Expenses
If you are contemplating bankruptcy, the first thing that you need to do is evaluate your expenses. I have talked to many people over the years who are thinking about filing for bankruptcy, while at the same time enjoying many of the luxuries of life.
If you are in such a desperate situation that you are willing to turn your back on the agreements that you have made in the past, then you should first be willing to strip all of the extras out of your life.
To have a $200/month cable bill, $350/month dining out, paying tons of money for your kids to learn every instrument and sport known to man, and new(ish) cars for everyone in the household, and then claim to be too broke to make minimum payments is a joke!
Cut your budget down to the bare essentials and then attack your debt with everything that you have. This method takes sacrifice, but it will also help you to see what is really important in your life.
Sell Your Assets
If you are in a situation where your debts are growing, and it seems like you have no way out, take a financial inventory. When you want to know how to pay off debt fast, you need to look at all avenues!
Check to see if there are any accounts which you can liquidate – you may want to include your emergency fund in that analysis as well. Also, if you own property or other things of value, you may consider selling them in order to pay off a huge chunk of debt at one time.
It may be hard to sell your home or other treasured possessions, but this may provide the shot in the arm that your debt repayment plan desperately needs. Of course, if your asset is serving as collateral for a loan, you have to see how much you will get after paying off this obligation.
Earn More Money
This is another weapon in your debt repayment arsenal, which is often overlooked. You can first try to earn more money on your current job. Ask for a raise, or try to work overtime. If those options don’t work, then it may be time to search for a higher paying job!
Also, try to use your skills, hobbies, and passions to make money. You can sell the things that you design (I know several people who make good money by designing and selling jewelry), give lessons, or even start a website/blog devoted to your passions!
Talk to Your Creditors
In many cases your creditors would rather get some of the money that you owe them, rather than nothing! Therefore, they are usually willing to work out an agreement with you in order to get your debt paid. This normally happens in one of two ways.
This is an option where your creditors agree to accept a reduced amount – this can sometimes be 50% or less of the original amount due. If there is no chance that, given your current financial situation, that you can pay off the full amount that is due, this may be a viable option for both parties, then debt and bankruptcy will be a thing of the past.
Many creditors have some sort of “hardship program”, which they offer to consumers who are facing financial difficulties. If, based on your overall financial situation, you can pay off your debt – but you just need a temporary break – your creditor may choose to lower your minimum payments and/or your interest rate for a certain amount of time.
For installment loans, sometimes the bank will take a few of the payments that are currently due (or due over the next few months), and add them to the end of the loan period. If you are behind on your payments at the time, this will allow you to be current in their system. Sometimes, they will actually structure these payments so that you are given a couple of months of breathing room.
These temporary hardship programs – if offered by each creditor – may be enough to allow you to take control of your finances and avoid bankruptcy.
Bankruptcy As A Last Resort
After considering and trying all of these methods, you may still be in a position where it is impossible to pay off your debts. Many times this is due to the debt that remains after a series of medical emergencies, or even when an irresponsible spouse leaves their partner with hundreds of thousands of dollars in debt! In these cases, bankruptcy may be the only way to have a normal life.
Unfortunately, it is impossible to make general statements on an issue this important and complex. Therefore, you must consider your specific financial situation with an expert before making any decisions.
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