Are you thinking about filing bankruptcy? Before you do, learn more of the benefits of exploring other options and avoiding bankruptcy altogether.
Sometimes, bankruptcy feels like the only option. At least, this was the case for nearly 550,000 Americans who filed in 2020, using the protection to survive seemingly impossible debt. Despite the consequences, many saw it as the only way to maintain their livelihood.
Bankruptcy has disadvantages and can have significant, long-lasting costs. The red mark on your credit can severely limit many of life’s opportunities for up to 10 years. It can keep you from buying a home, opening a credit card, and even getting a job.
Some people make the decision without realizing that avoiding bankruptcy and paying off debt are both possible.
It takes time, effort, and a little research, but finding an alternative to bankruptcy is worth it.
If you’re struggling with debt and considering filing for bankruptcy, put those thoughts on hold until the end of this article. We’ll show you helpful strategies for avoiding bankruptcy and getting your finances back on track.
Avoiding Bankruptcy Starts With a Conversation
If you’re in a position where bankruptcy is an option, you may also be struggling with credit issues. Getting out from under debt is a lot harder when poor credit limits your exit strategies.
Debt consolidation is one great way to get out of debt, as we’ll discuss, but your credit still plays a role in determining your interest rate. Plus, debt consolidation has its own effect on your credit, so you may want to keep that option as a backup as well.
The first thing to do is reach out to your creditors and discuss your options. COVID has been hard on everyone, and many lenders have picked up the slack in helping out their customers. If your circumstances changed or you are just struggling with a bill and need some relief, you may be able to negotiate a lower payment.
If you talk to lenders, you may be able to lengthen your payoff term or lower your interest rate, both resulting in lower monthly payments. But be wary of longer payoff terms and do the math — you may end up paying a lot more over time.
Tell your lender what you can pay each month. They may only do a soft pull and get some basic information and present you with offers.
Establishing a Repayment Plan
Working directly with lenders is a great way to preserve your credit score while reducing your monthly payment. The one downside is that they may put you in a repayment program that limits your ability to use a line of credit.
For example, say you owe $10,000 on a credit card with 14 percent interest. You pay about $300/month, and you just can’t manage that much.
You talk with your lender, and they reduce your interest down to seven percent and put you on a repayment plan. You may now only pay $230/month, and you’ll pay it off quicker. This is an example, and your own offers will vary based on the lender and personal factors.
The catch is, you can’t use that card anymore, and they close your account when it’s paid off. You won’t have it as a backup in case of emergencies. On the other hand, you may see it as a way to resist the temptation to use the card and incur more debt.
Consolidate Your Debt
Before making the leap into new lines of credit and programs to resolve debt, it’s crucial to talk to a credit counselor. These services may come with fees, but it’s often a small price for preserving your credit and your assets.
A counselor may suggest debt consolidation as a means for avoiding bankruptcy and managing debt. With debt consolidation, you open a new line of credit, which is often a loan, to pay off various credit card or other loan debt.
Debt consolidation offers are usually filed right away in the trash before we even open them. If you have a good rate on a credit card, there’s rarely any point in using many of these deals because they offer an equal or higher rate. Still, you should take time to look into these options if you are on the brink of bankruptcy.
If you have several cards or loans that have high rates, a debt consolidation loan with a lower rate could save you tons of money and effort in juggling multiple accounts. Shop personal loan offers for a low interest rate and monthly payment you can manage, and use it to pay off accounts with the highest interest.
Balance Transfers
An alternative to a personal loan, which requires a bit more discipline and often credit worthiness, is a balance transfer to a new credit card. Many lenders offer special cards specifically for this purpose.
If you have good to great credit, seek out credit card options that have low origination fees and 0 percent APR introductory periods. Think of it as a time-sensitive loan.
If you owe $5,000 on a card with 10 percent interest, for example, you could open a balance transfer card that offers 0% APR for 18 months. If you get at least $5,000 on the new card, you can transfer the full amount and drop your monthly payments by $50/month. It may seem small, but combined with other consolidation methods and smart money habits, it can be essential in avoiding bankruptcy.
If you have poor credit, it’s unlikely that you’ll qualify for a balance transfer card, so it’s important to do your research before applying. Only apply for loans and cards that you are likely to get because each application can hurt your credit, making it even harder to get financing later.
Online credit services like CreditKarma can give you snapshots of programs and cards that you may qualify for with your current credit situation. For the best advice, talk to a non-profit debt counselor who can assess your situation and provide a customized plan.
Talk With a Bankruptcy Lawyer
A lot has changed recently, and there are many misconceptions about bankruptcy during COVID. Although avoiding bankruptcy is ideal in any situation, new safeguards are in place to protect debtors and their assets if they file for bankruptcy. If it seems like the only option, talk with an experienced bankruptcy lawyer about the new laws and what you can expect if you file.
If you’re like the thousands of Americans struggling to fix debt, there are several options, including bankruptcy, that can provide you the relief you need. Contact Husker Law in Omaha at 402-415-2525 today for a consultation, and start securing your financial future.
