1) Use your Assets
If you have assets with some
significant equity, such as a home or a car you may be able to use these to get
control of your debt. For example, you could get a loan on your home sufficient
to pay off your debts. You could be saving a considerable amount of money on
interest if you pay off high interest credit card debt in return for lower cost
debt.
If you have a car, consider selling it, paying off your debts and
buying a cheaper car. Be careful though! Your don't want a "cheaper" car that
will cost you a fortune in repair costs.
2) Get a Second
Job
Use the money from this job to only pay off your debts. List
your debts noting the interest rates. Pay off the debts with the highest rates
first and work your way down the list.
3) Put your Credit Cards
on Hold
One of the best steps you can take to get out of debt is to
immediately stop using credit cards. At the very least destroy all your cards
keeping just one card for emergencies.
4) Set up a Repayment
Plan
Cut back on your expenses and/or use freed up cash to pay down
your debts. Pay off the debts with the highest rates first and work your way
down the list.
5) Get a Consolidation Loan
A
consolidation loan can make lots of sense. Get a loan to pay off all your many
debts and have just one payment to make. The new loan usually has a smaller
payment and a lower interest rate.
6) Use the Services of a
Credit Counselor
There are two types of credit counselor, for profit
and "nonprofit". We do not distinguish between the two as they provide similar
services and both charge a fee. Credit counselors can assist you in acquiring
the discipline you need to get control of your debt. Be careful! Many people do
not fully understand all the ramifications involved such as:
Impact on
your credit rating
The credit bureau will record that a plan is in
place.
Are your payments too high?
Your payments should be high
enough to significantly reduce your debt but not so high that you have "no
life". If you do not have money left over at the end of the month to pay for the
small pleasures in life you may find that you end up defaulting on your
payments.
For how long should you pay?
Most experts feel that the
term should be three to four years. It is a stipulation in the new Bankruptcy
Reform Bills that the term be 3-5 years. Terms longer than this have a very high
failure rate, because people cannot see a "light at the end of the
tunnel".
7) Informal Proposal - Payments over
time.
In some cases you can make a proposal to your creditors to set
up a payment plan that will allow you to pay your creditors in an orderly way
and thus help preserve your credit rating. This operates similar to a debt
consolidation loan except you do not borrow the money to pay off your
creditors.
8) Informal Proposal - Lump sum
payment.
You may be able to pay less than 100 cents on the dollar.
For example, a relative may be willing to pay a lump sum to the creditor of say
50% of the amount owed in order for the balance of the debt to be written off.
Your creditors will be more willing to accept this offer rather than have you
file Chapter 7.
This works best when there are few
creditors.
9) Chapter 13 Bankruptcy
You are probably
a good candidate for Chapter 13 bankruptcy if you are in any of the following
situations:
1. You have a sincere desire to repay your debts, but you
need the protection of the bankruptcy court to do so. You may think filing
Chapter 13 is simply the "Right Thing To Do" rather than file Chapter 7.
2.
You are behind on your mortgage or car loan, and want to make up the missed
payments over time and reinstate the original agreement. You cannot do this in
Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13
bankruptcy.
3. You need help repaying your debts now, but need to leave open
the option of filing for Chapter 7 bankruptcy in the future. This would be the
case if for some reason you can't stop incurring new debt.
4. You are a
family farmer who wants to pay off your debts, but you do not qualify for a
Chapter 12 family farming bankruptcy because you have a large debt unrelated to
farming.
5. You have valuable nonexempt property. When you file for Chapter 7
bankruptcy, you get to keep certain property, called exempt. If you have a lot
of nonexempt property (which you'd have to give up if you file a Chapter 7
bankruptcy), Chapter 13 bankruptcy may be the better option.
6. You received
a Chapter 7 discharge within the previous six years. You cannot file for Chapter
7 again until the six years are up.
7. You have a co-debtor on a personal
debt. If you file for Chapter 7 bankruptcy, your creditor will go after the
co-debtor for payment. If you file for Chapter 13 bankruptcy, the creditor will
leave your co-debtor alone, as long as you keep up with your bankruptcy plan
payments.
8. You have a tax debt. If a large part of your debt consists of
federal taxes, what happens to your tax debts may determine which type of
bankruptcy is best for you.
10) Chapter 7
Bankruptcy
If these alternatives will not work for you, bankruptcy
may be the only way for you to get a fresh start. Chapter 7 Bankruptcy offers a
quick solution to getting out of debt.
About the Author
Nathan
Dawson writes for http://www.mybankruptcycounseling.com
