Despite the negative connotations associated with bankruptcy, it’s actually a fairly common occurrence. Over 760,000 people filed for bankruptcy in 2017 alone in the U.S. Even though many people have filed for bankruptcy, you don’t really want to go through with it unless you’ve considered all of your other options.
With a liquidation bankruptcy, which is the most common type for individuals, you’ll have to give up many of your assets and will take a big hit to your credit. Consider these five alternatives to bankruptcy before filing.
Reevaluate Your Budget
Your budget is one of the most important parts of your financial life. Even if you were on a budget before, it’s wise to look at it again before you make the decision to file for bankruptcy. These are some of the important steps and things to look for when building and evaluating your budget:
- Make sure you’re including all your financial information. Your budget isn’t going to be effective if anything is left out of it. Make sure you’re totaling up all income and expenses when budgeting. Don’t forget about things you pay for in cash or through apps like PayPal or Venmo.
- Designate between fixed and variable income and expenses. Fixed items are things like rent, insurance, or other payments that are consistently the same month after month. Salaried workers can typically expect to bring in the same amount of money each month as well. Variable costs are things like entertainment, food, or any expense that’s going to change. People who don’t work traditional 9-5 jobs might also have variable income. It’s essential to remember fixed and variable items are in every budget. Leaving out those variable costs can really throw you for a loop.
- Find the difference between your income and costs. Hopefully your income will be higher. Even if it is, you’ll want to give yourself as much cushion as possible so you can pay down your debt to avoid bankruptcy.
- Cut expenses where you can in order to dedicate more money toward debt repayment.
Refinance What You Owe
Refinancing loans can make a significant difference in certain scenarios. If you have a mortgage or car loan, you’re likely going to pay a lot in interest over the life of that loan. Most loans are front-loaded, which means you’re going to be paying more interest in the early stage. Refinancing a loan can greatly reduce the amount of interest you’ll have to pay over its life, especially if you do it in the first few years of having the loan.
Look into Debt Settlement
Debt settlement is a potential option for people who are really struggling with their debt. This is where you hire an organization to work with your creditors to reduce what you owe. This can work well for certain people who owe more than they can repay and don’t have great credit. It’s also important to choose the right debt settlement company. Look around for an organization with good reviews, such as Freedom Debt Relief.
Consider Debt Consolidation
Debt consolidation is another option for people who need a bit of external help in order to get their finances back on track. This is different from debt settlement in a few ways. You’re not actually reducing the principal balance you owe when you consolidate debt. You’re just bundling your loans into one payment with a lower net interest rate. This can make it easier to pay back the debt because there’s less interest to worry about and you only need to focus on one account.
Boost Your Income
When it comes down to it, avoiding bankruptcy is about finding ways to pay down your debts. One of the best ways to do this is by generating more income. This can be done more easily now than ever before thanks to the wide array of apps and online services that allow individuals to make money. You can also consider freelancing if you have a particular skill. Sometimes, you can even go a long way by just selling items you already own online.
Bankruptcy is a path that should only be taken as a last resort. Definitely consider the viability of these other options before you opt for it.
Featured Image Source: Flickr