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, a great online source
for bankruptcy information
