There are several options for paying off and eliminating debt. While filing bankruptcy is an option, it has many serious repercussions. Paying off debt can give you a feeling of success and achievement, helping you to learn more about sound financial management. However, if you have exhausted all other options, then bankruptcy is a viable strategy for getting out of debt and reclaiming your financial future.
Different Ways to Pay Off Debt
Consulting with a debt counselor can help you to create a plan for paying off and eliminating your debt. Many communities have free resources for helping people in debt and educating individuals about money management. Different strategies for paying off debt include paying off more than the minimum payments, snowballing payments so that you pay off the smaller debts first, cashing out your savings account, borrowing against life insurance or 401K plans, getting a home equity loan, or borrowing money from family or friends.
Last Resorts for Paying Off Debts
If you have exhausted all of the above options, try to renegotiate terms with your creditors. If you contact your creditors and tell them about your situation and that you might be forced to file for bankruptcy, your creditors may be willing to find better terms for repayment. Ask for a new or lower payment schedule, lower interest rates, or appeal to their desire to receive payment. If contacting creditors seems too daunting, then there are organizations that will do it for you.
By filing for bankruptcy, creditors are barred from debt collection, stopping the telephone calls and harassment. Payments on cars and mortgages cease, at least temporarily. Lawsuits against you for debt collection are prohibited during this time. Your car cannot be repossessed, although you may be required to liquidate it if you file for Chapter 7 bankruptcy. Another benefit is the discharge of most credit card and medical debts.
Drawbacks of Bankruptcy
Declaring bankruptcy remains on your credit score for 10 years. If you plan on taking out a loan for a car or house over this span of time, then it will be much more difficult than if you had not declared bankruptcy. Having a wrecked credit score can also affect which credit cards you may qualify for in the future as well. You will only be able to attain those with higher interest rates. Other drawbacks include attorney and court fees that could amount to several hundreds of dollars in order to declare bankruptcy. Chapter 7 bankruptcy may require you to liquidate your property to repay some of the debt owed. Chapter 13 bankruptcy allows you to keep your assets, but the court will be in control of your finances and will construct a repayment plan for all or part of your debt over the next three to five years.