While there are some cases wherein bankruptcy is the only option, you have to realize that you need to exhaust all possible alternatives first. It is never a good idea to just plunge headlong into this debt solution – no matter how fast it gets you out of debt. You should realize that the repercussions and damages is too great to ignore. If you can make further sacrifices in order to afford one of the other debt relief options, that is something that you may have to face.
Even if bankruptcy can discharge your debts, that does not mean you will not spend anything. There are several costs to consider like the processing fee involved in filing your petition. Not only that, you have to pay for the professional fee of the lawyer who will help you out. If anything, the cost should be one more reason for you to avoid bankruptcy.
Why debt settlement is better than bankruptcy
Because of the many disadvantages and pitfalls of bankruptcy, you may want to consider the next best thing – debt settlement.
A consumer has two options when it comes to bankruptcy – Chapter 7 and Chapter 13. The first is the better option because most of your debts will be discharged – at least whatever is not paid after the liquidation of your assets. The latter, on the other hand, will subject you through a court-ordered repayment plan that will take months to a couple of years to complete. While Chapter 13 can protect your assets, you will still be paying a portion of your credit obligations. If that is the case, then you may want to just avoid bankruptcy and opt for debt settlement.
If you compare debt settlement with bankruptcy, you will realize that there are some advantages to be gained with the former. Here are some of the reasons why debt settlement should be chosen over bankruptcy.
- Lesser damage on your credit score. One of the main reasons why you need to choose debt settlement is for the damages that bankruptcy can bring to your credit report. The effects of bankruptcy can be as high as a 200 point reduction on your current credit score. In debt settlement, the average reduction is only 50 points – which is not so difficult to regain once you get yourself out of debt.
- Your financial difficulty will remain to be a private thing. Another reason why you want your debts to be solved by debt settlement is the fact that your problem will remain to be a private issue. Everyone who filed for bankruptcy will be placed in a public record. If you want to avoid bankruptcy and this embarrassment, just opt for settling your debts.
- Protection of your personal assets. Another reason why you need to stick to debt settlement is the fact that you can protect your possessions from being liquidated. If you have some properties that you don’t mind selling, you can do that but it will be under your own terms – not the court.
How to stretch your finances to afford debt settlement
To be sure that you are doing the right thing, you may want to consider going through credit counseling to determine if your finances can really afford debt settlement. Anyway, bankruptcy will require you to go through this so it may be best to get a head start. You are not losing anything and you get professional confirmation as to whether you should avoid bankruptcy or not. You can look through the list of accredited credit counseling agencies on the US Department of Justice website to find the company that you can trust.
One of the reasons why a counselor will tell you to file for bankruptcy is when your finances cannot afford it. Most people, because of the possibility of a Chapter 7 bankruptcy believe that this is the more economical choice for the to get out of debt. While there may be some truth to that, you have to realize that there are ways for you to make debt settlement cheaper. For one, you can forego hiring a debt negotiator and just conduct your own settlement proceedings. That could save you some money.
Here are other tips to help you grow your finances and thus afford debt settlement.
- Cut back on spending. You need to analyze carefully your monthly expenses so you can see where you can cut back on what you usually spend on. While this can grow your debt payment fund, it will be fairly limited but a small amount is better than nothing.
- Earn more money. Of course, there is also the option to earn more money. You can opt to get a second job or build up an online career to help you get out of debt. That should help you get your hands on more money to help with debt payments.
- Stop incurring debt. It is also a good idea to stop acquiring more debts. This will take a lot of your effort and self control but if you are successful, you can find yourself loving the debt free life.
- Grow your savings. Lastly, try to grow your savings. This is very important because it will help you finance an emergency situation and thus keep you from the need to borrow money. You can simply use your savings to get out of your unexpected expense.