Dealing with debt can be overwhelming, and many people would prefer to avoid filing for bankruptcy. However, it's no surprise that bankruptcy is a popular option for those struggling with debt.
One of the benefits of filing for bankruptcy is that it can put an end to the constant calls and letters from creditors and debt collectors. Additionally, it provides a fresh start by wiping the slate clean. On the other hand, there are also downsides to bankruptcy, such as the negative impact it can have on your credit score.
Interestingly, according to a report by Supreme Court Chief Justice John Roberts, the number of bankruptcy filings dropped from 1.6 million in 2010 to 770,000 in 2018. So, what caused this decline, and are there other options available for getting out of debt?
The good news is that there are alternatives to bankruptcy. If you're looking to get out of debt without going through the bankruptcy process, there are several options to consider.
1. PLEASE READ FIRST
When it comes to getting out of debt and avoiding bankruptcy, it's important to know that you have choices. The good news is that there are different options available. The challenge is figuring out which one is the best fit for you. Fortunately, there's a tool that can help. The Debt Payoff Options Calculator compares the costs, pros and cons, and options for 5 different debt payoff strategies. It even includes bankruptcy as an option if you want to compare it. The calculator only takes 2-10 minutes to complete and will provide personalized results based on your data.
2. Debt Payoff Planning
Believe it or not, there is a way to get out of debt without resorting to bankruptcy or other extreme measures. However, this method only works if you're not too far behind on your payments and can afford to make at least minimum payments on your debts. Here are three essential steps to follow:
a. Find Out How Much Debt You Have
Are you struggling with debt? The first step to getting out of debt is to face it head-on. Ignoring your debts won't make them disappear, so it's time to tally up all your debts. Once you have a clear picture of your debts, it's time to calculate your debt-to-income ratio.
Your debt-to-income ratio is the total amount you owe, excluding your mortgage, as a percentage of your gross annual earnings. This ratio will give you an idea of how much debt you have and what it will take to get out of it.
But don't worry, there are tools available to help you on your debt payoff journey. Check out the Savvy Debt Payoff App, available on iOS and Android. This app uses the newly developed Savvy Debt Payoff Method, which saves users an average of over $2,000 compared to the Snowball Debt Payoff Method. With the right tools and mindset, you can overcome your debt and achieve financial freedom.
b. Do Away With the Patterns that Got You into Debt
Financial problems can arise due to bad spending habits. Even if you win the lottery, it won't solve your spending problems. It's crucial to control your spending and live within your means. Losing a job or source of income can also lead to debt, especially if you continue to take out loans. However, the most common cause of debt is spending more than you earn.
Living within your means can be challenging, but it's necessary to avoid financial problems. Cutting back on unnecessary expenses and creating a budget can help you stay on track. It's also important to have an emergency fund to cover unexpected expenses and to avoid relying on credit cards or loans. By managing your finances wisely, you can avoid debt and achieve financial stability.
c. Make Enough Money to Pull You Out of Debt
Getting out of debt can be challenging, but it's not impossible. The key is to make more money than you spend. This means you need to find ways to increase your income while keeping your expenses low. Here are some tips to help you earn extra money and get out of debt faster:
- Sell items you no longer need. You can sell your unused items on online marketplaces like Craigslist or eBay, or even have a yard sale. This can give you quick and easy cash, but keep in mind that you will eventually run out of things to sell.
- Consider taking on a part-time job or working longer hours. There are many job opportunities available, such as babysitting, driving for ride-sharing services like Uber or Lyft, waiting tables, or freelance writing.
- Look for higher-paying job opportunities. This can involve seeking a promotion at your current job or finding a better-paying job elsewhere.
Remember, it's important to earn enough to cover your living expenses and pay off your debts. It may take time and effort, but with the right mindset and strategies, you can become debt-free.
3. Debt Settlement
If you're struggling with debt payments, you may have heard of debt settlement plans advertised in the media. Debt settlement involves hiring a company to negotiate with creditors on your behalf, with the goal of paying less than the full amount you owe. While this may seem like a good option, there are pros and cons to consider. One major drawback is that it can negatively impact your credit score. You should also be aware that the process can take up to three years to complete.
In addition to the time commitment, there are other potential downsides to debt settlement. Some creditors may not accept it as a payment option, and there is no legal requirement for them to do so. Even if your debt is settled, you will likely still have to pay a portion of what you owe. This amount may be more than you expect, and you will also have to pay the debt settlement company a percentage of the money saved. This additional fee will be taxed as income on your next tax return.
Despite these challenges, debt settlement can be a useful tool for lowering your total debt and interest rates. It also provides a clear plan for paying off your debts within 2-4 years instead of up to 9 years. While your credit score will take a hit, it will not be as severe as it would be with bankruptcy. It's important to carefully consider all the factors before deciding if debt settlement is the right choice for you.
4. Debt Management
If you're struggling with debt, debt management could be a solution for you. It involves a non-profit company negotiating with your creditors for lower interest rates. This option is best for people who are not behind on payments and have mostly credit card debts.
Once the debt management services provider consolidates your bills, you'll make a single monthly payment that's lower than what you were paying before. In addition to the lower interest rates, debt management also offers longer repayment terms and an overall reduction in debt.
Debt management is just one of several options available to help you take control of your debt and reduce your monthly payments, ultimately saving you money on fees and interest. Here's what you can expect from a debt management plan:
- It typically takes between 36 to 60 months to repay debts.
- You may be restricted from applying for additional credit during this period.
- If you're late on payments, you could lose progress on your decreasing debt or lower interest rates.
It's important to note that while debt management may be preferable to debt settlement, the debt management company will charge a fee. Before proceeding with either option, it's a good idea to review the differences between debt management and debt settlement.
Track Your Income / Expenses
If you want to get a handle on your debt, it's crucial to keep tabs on your spending. By creating a budget and sticking to it, you can establish healthy financial habits. While you can use traditional methods like pen and paper to track your expenses, there are other options available, such as using a spending tracker app.
When you don't keep track of your money, it's easy to wonder where it all went. But with a reliable spending app, you can start achieving financial success. Ultimately, it's up to you to decide which method works best for you when it comes to getting out of debt. Consider factors such as how far behind you are on payments and other relevant considerations before making a decision.