In 2018, Americans’ debt hit $13 trillion, with the average American carrying more than $38,000 in debt – not including home mortgages. For many, debt is simply a way of life, with more Americans living from paycheck to paycheck.
For those consumed by debt, Chapter 7 or Chapter 13 bankruptcy is an option, with Chapter 7 wiping out eligible debt, and Chapter 13 reducing debt and allowing filers to make monthly payments to pay off the rest.
However, bankruptcy is not always the best solution. It can leave your credit score in tatters and prevent you from purchasing a home or vehicle, or anything else on credit.
If you find yourself starting to be overwhelmed by debt, there are some things you can do to possibly eliminate the need to file for bankruptcy. Here are seven of them:
- Contact your creditors immediately. Be honest with them regarding your situation and ask for some assistance. Being proactive can go a long way towards remaining in good standing with your creditors. While not all will be willing to negotiate, if they are aware that you are considering bankruptcy, they may be more willing to establish a new payment plan, since they will likely receive nothing if you end up filing for bankruptcy.
- Do an inventory of your monthly bills and see what you can eliminate. Things like an expensive cellphone plan, landline, movie channel subscription, or cable TV may be nice, but it can also drain your bank account. Eliminating these costly monthly services can help you build up your bank balance.
- Start selling your valuables. Jewelry, computers and other electronics can sometimes bring in a healthy influx of cash. Have a garage sale or put them up on sale online. While this solution may not be for everyone, if you have a lot of valuable possessions, this can definitely buy you some extra time.
- Take a second job. If you work a regular day job, consider getting a second job in the evenings or weekends. Use any wages earned to help pay off your debts. If your schedule varies from week to week, consider ways to work online or perhaps turn a hobby into a money-making opportunity.
- Borrow money from your family. Again, this may not be a viable solution for some, but if your family is ready and willing to help, accept the help gracefully. You’ll also want to create a repayment plan once you have more resources available. Be careful accepting money from friends. Borrowing money has ruined more than one friendship, but only you can determine whether this is a good option. And again, draw up a plan for repayment that you’re both happy with.
- See a credit counselor. Many people are uncomfortable discussing their finances with a stranger, but a good credit counselor can help tremendously. Besides, if you do end up filing for bankruptcy, you’ll have to see a credit counselor anyway, so it’s best to be proactive.
- Learn from the experience so that it doesn’t happen again. Are you an impulse buyer? Do you spend more money that you make? When working through a debt crisis, it’s so important to determine what you led you to this position in the first place.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2019 Advisor Websites.