With the downturn of our economy, many Americans are finding themselves in a constant battle with a never-ending mound of debt. Pay cuts, reduced hours, lay-offs, medical bills these are just a few reasons why many Americans have turned to rely on credit cards to make ends meet.
Drowning in a pool of late payments, increasing interest rates, penalty fees, and increasing balances, many consumers begin to consider drastic solutions like filing for bankruptcy.
However, filing for bankruptcy can be an emotionally tolling process and is often considered the option of last resort, thus an alternative to bankruptcy should be explored before choosing to file for bankruptcy.
There are two kinds of bankruptcy that are available for consumers to file for: Chapter 7 and Chapter 13. Chapter 7 bankruptcy protection eliminates an individual’s debt completely, although it is difficult to qualify for and can require a consumer to divest some or all of their assets to pay off creditors. Chapter 13 bankruptcy requires an individual to pay back a percentage of their debts, typically over a 3 or 5 year repayment plan, and a trustee distributes those payments back to the individuals creditors. Both of these bankruptcy types can seriously impair an individual’s credit score and credit profile, and make it extremely challenging for an individual to secure any kind of favorable loan for years.
But what some consumers may not know is that there are alternatives to bankruptcy. One of the most common is debt settlement, also known as debt negotiation. Debt settlement will not only get consumers out of debt quickly, but it can reduce balances by as much as 40 to 60 percent within an average time frame of 24 – 36 months. Consumers in debt might seek out a debt settlement or debt negotiation company that will work with their creditors to structure settlements at a reduced balance. While creditors may not normally consider settling if a consumer inquired directly, debt negotiation firms have relationships with the lenders to help structure these reduced settlements.
Another alternative to bankruptcy is debt consolidation. Under this method, a lender will issue a new loan that pays off all the consumer’s individual debts. This process is effective because while it doesn’t reduce the debt, it consolidates the number of payments a consumer has to make per month to just one, and typically carries a much lower interest rate than credit cards or other types of debt. One drawback of this solution is that these loans are often difficult to qualify for due to a high credit score requirement.
Although having the security of credit to fall back on in dire times can be helpful, it can also be detrimental when consumers use the credit to spend more money than they can afford. With interest added onto the increasing balances every month, many consumers end up barely having enough to make minimum payments each month, thus leading them to consider bankruptcy as solution to get out of debt. But an alternative to bankruptcy is usually attainable as long as the consumer does their homework to choose a good company to work with and stays committed to the program.