Are your finances teetering on a cliff edge? Do you owe debt collectors far more than you can possibly repay? When you face financial hardship and seem unable to recover, you’ll probably see bankruptcy as the only way out.
If this sounds like you, you’re far from being alone. Many Americans are often pressed to file for bankruptcy due to considerable debts they cannot cover. With credit card balances reaching an $887 billion high, it comes as no surprise that bankruptcy courts are gearing up for mass filings in the near future.
Nonetheless, financial experts consider this solution the last resort and don’t recommend it to anyone that has a hard time paying their creditors.
While it will make many debts go away, you may find that what you get in return may be more than you bargained for. This is partly due to legal changes enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act – BAPCPA in 2005.
The dread, guilt and embarrassment turn your world upside down.
Consequences of Filing for Bankruptcy
Filing for bankruptcy basically means going before a judge and telling them you cannot pay your debts. Then, depending on your situation, you either devise a plan to pay your debts back or get them canceled.
The BAPCPA may require those who have declared bankruptcy to:
- Make ongoing payments to creditors
- Attend mandatory credit counseling
- Attend mandatory financial-management education
Contrary to popular misconception, filing for bankruptcy does not necessarily exempt you from eviction, lawsuits, or a suspension of your drivers license if you have unpaid fines. Declaring bankruptcy usually won’t erase unsecured debts like child support, student loans, and IRS debt either.
Because bankruptcy remains on your credit report for up to 10 years after filing, it’s not a decision to be made lightly.
Taking Responsibility for Debt While Avoiding Bankruptcy
While sudden job loss and unexpected medical bills can force almost anyone into an uncomfortable financial situation, Americans facing bankruptcy may also be in this situation because of poor spending and saving habits.
In a society where trying to keep up with the Joneses is a norm, a brush with bankruptcy can be a sharp reminder of the importance of a lifestyle change.
As you try to avoid bankruptcy, here are some of the ways you can take responsibility for your debt:
- Pay Your Bills First
If you have only recently started to spiral out of control with debt, you might still be able to recover. Prioritizing your bills at the first signs of financial trouble is one way to take responsibility for the debt.
As soon as you receive your paycheck, pay off the outstanding bills before spending money on anything else. This includes rent or mortgage, utilities, transportation, minimum payments, etc.
If you buy unnecessary things before paying your bills, you may not have enough left to sort the bills. This can hurt your credit rating and lead to further financial troubles in the future.
- Cut All Non-Essential Expenses
Keep a close eye on spending behavior and only use money on the absolute essentials that you and your family need.
A monthly income and expense sheet will help you monitor your spending and compare it against your income to see patterns in your spending habits.
Eliminate all spending beyond the absolute basics of clothing, food, shelter, and transportation. This includes all the little luxuries we convince ourselves to be necessities, such as dining out, cable TV, high-speed internet, magazine subscriptions, gym memberships, alcohol, and cigarettes.
Dedicate the extra money to paying debts.
- Only Make Purchases When You Can Pay for Them in Cash
If you find yourself constantly swiping your credit cards or using lines of credit to make everyday purchases, it won’t be long till you find yourself with more liabilities than assets.
This will hurt your credit rating and lead to more serious debt problems.
If you can’t pay for something in cash, you probably can’t afford it.
- Don’t Spend More Than You Make
Spending more than you make may mean you’re buying with credit or using your savings.
Overspending is a fast way of getting into financial trouble.
If you have problems sustaining your lifestyle on an all-cash existence, consider downsizing it. Some big-ticket ways to downsize include skipping vacations, moving to a smaller house/apartment, and driving an older, less expensive car.
- Contact Your Service Companies and Ask for An Updated Plan
Outdated plans can be expensive.
Service companies such as cable, internet, and cell phones frequently update their plans and reduce costs but do not alert you of these changes that may benefit you financially.
- Sell Off Stuff You Don’t Need
Take a good look at your home. Are there things that you rarely or never use anymore?
You have money hanging around in the form of extra cars, jewelry, home furnishings, office supplies, etc.
Take the money you make and direct it toward getting bills up to date. Selling these things would decrease the amount you owe and help to cut your expenses that are directly attributable to the sold assets.
- Ask Your Credit Card Company to Reduce Interest Rates
Your credit card company might be more willing to work with you than you expect.
Pick up the phone and speak to them to find out if you can renegotiate interest rates.
Sometimes, it takes just a simple phone call to enjoy better payment terms on your cards.
Remember to ask if there’s any fee to reduce the rates.
- Consolidate Your Balances
If you’re having challenges keeping track of your debt payments, consolidating them is a great option.
Here, you take out another form of credit and use it to pay off multiple debt balances.
This strategy is convenient since it involves rolling various debts into one loan with one payment. You may also qualify for a lower interest rate, but you’ll need a strong credit score and a source of income.
Debt consolidation can be a good strategy, but you must be resilient to avoid backsliding.
- Seek Consumer Credit Counseling
You’re trying to avoid bankruptcy here.
When you are in financial trouble, don’t shy from seeking help from a financial expert.
A credit counselor can help with getting you on a debt management plan.
Debt management plans are a form of debt relief where a company negotiates on your behalf to lower your interest rate, reduce your monthly payment, and get you onto an affordable payment schedule.
- Negotiate the Debt Yourself
Maybe you have reached the point where you have exhausted forbearance options on your debt and have stopped paying it entirely.
Once your account is past due, your creditor may send it to a collections agency that will then be responsible for collecting the debt.
Many Americans don’t know that they can actually settle their debt with collectors. This means you can agree to pay less than the actual amount owed.
Although collectors are notorious for calling debtors nonstop, you should take the opportunity to ask about any settlement options that may be available. Let them make the first offer—it could be less than what you’re actually able to pay, which will save you money.
We Can Help!
If you’re serious about getting your finances in order, you need to get and stay out of debt.
Bankruptcy isn’t your only way out!
Avoid bankruptcy and regain your financial footing by connecting with Americor. Together, we’ll walk out of this financial wreck and into financial independence once again.