(DailyChive.com) – If you’re having a hard time paying your bills and feel like bankruptcy is the only option, make sure you have exhausted all other solutions before taking such a huge step. While you might have a hard time seeing another way out of your financial woes, keep in mind that declaring bankruptcy has long-term negative effects on your ability to borrow money, get any type of credit, and even make it impossible to rent an apartment.
What Does Bankruptcy Mean?
If you declare bankruptcy, you are telling your creditors—the companies that lent you money—that you can’t pay that money back—that you are, effectively, a bad credit risk. There are two types of personal bankruptcy—Chapter 7, which wipes out all of your debt, and Chapter 11, which restructures your debts and you do pay back at least some of what you owe. Although Chapter 11 seems like a pretty good deal to many people, you should still consider all the alternatives.
What are Bankruptcy Alternatives?
There are several others ways to get yourself out of a financial jam. Which one meets your needs depends on how far behind you’ve gotten with your bills.
Debt Consolidation
If you see trouble looming, try to consolidate your debt before you start missing payments. If you’re paying high interest rate loans, a lower rate credit card or personal loan may lower your payments enough to keep you afloat.
Generate More Income
The easiest way to avoid overwhelming debt is to add to your income. Ask your employer for a raise, first. In today’s super tight job market, that may be an easier ask than in the past. If that’s a no-go, try to get in some overtime hours.
Side hustles are also a quick and easy way to earn extra cash. Driving for a delivery or ride-share service puts money in your pocket almost immediately, and it’s something you can do in your spare time. If you have an extra room in your house, turn it into short-term rental, like an Airbnb.
Chances are that you have a lot of stuff you don’t use anymore. Have a yard sale, or list items on your neighborhood social media page for quick cash.
That extra income could be enough to pay off or pay down some high interest accounts, and free up that cash for other bills.
Revisit Your Budget
Most people honestly have no idea where their money goes. They budget for household expenses and everything looks fine, and then all of a sudden there’s a lot more month than money.
Cut the Virtual Cord
How many subscription services do you have? If you really don’t know, you’re not alone. Cutting cable is all well and good, but when pile on six streaming services plus YouTubeTV and your internet, you’re spending a fortune and don’t even realize it. Toss all those free-trial subscriptions you forgot to cancel after a week. This also includes things like gym and massage memberships—you can forego these and exercise at home until you’re on firmer financial footing.
Cut Everyday Expenses
Turn your thermostat up or down a couple of degrees, or set it so that it uses less energy when you’re not home. Check your local grocery stores for sales, and stock up on BOGO staples. See if you can negotiate a lower premium for your car and home insurance policies—anything to save money.
Negotiate with Creditors
Where many people get in trouble is that they only make the minimum credit card payment, so the interest just racks up. Creditors ultimately want to get paid, so they may be willing to negotiate your debt. These are some of the solutions they can offer.
- Lower payments temporarily (although interest can keep adding up)
- Pay off a percentage of the balance in full
- Lower the amount of the debt, usually by forgiving some of the interest owed.
One thing to watch out for is how a debt decrease affects your credit. Ask them to report the balance as paid in full, otherwise it is a seven-year negative on your credit report.
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