Dont Choose Bankruptcy As An Easy Solution

Bankruptcy is a serious credit problem. It is not just a "ding" on your credit report, it is a huge red flag to lenders. After a bankruptcy, you will be ineligible for many types of credit, including credit cards. The procedure of bankruptcy can also be draining. Bankruptcy should only be chosen as a last option if you really require your debts to be forgiven because you have no way of repaying them. If you are faced with this option, it is best to obtain professional advice.

Sometimes when our finances are in poor shape, it can be tempting to use payday loan services. This is a very bad idea unless you truly have no other option to survive. Such companies frequently charge high fees for their services, and those fees can easily increase dramatically if you don't pay them back on time.

What are some alternatives to bankruptcy? When your financial situation is grim, it may be tempting to choose bankruptcy when it might not be necessary. Alternatives to bankruptcy include:

1) Debt Negotiation Settlement. There are debt negotiation settlement services that negotiate with your creditors on your behalf, asking for an elimination of at least 50% of the outstanding debt. The negotiator also asks the creditor to not adversely affect your credit score. The threat of bankruptcy is used to gain the leverage to have the debt reduced.

Typically, how this works is that the debt settlement company directs you to stop paying your creditors and send your monthly payments directly to them. The company's goal is to convince your creditors that you don't have the money to pay. After a few months, the company approaches your creditors to say that they are holding a certain amount of money on behalf of their customer. They say that you don't have the money to pay, and they may get paid nothing if they don't settle. If the creditors want their money badly enough, they may settle for a substantial reduction of what they are owed.

While this strategy can be beneficial, it also has it downsides. For one, the settlement company may charge substantial fees. Also, by not paying your bills for some months, you may accrue additional penalties from the companies who you owe money to. A third negative is that this process will have a big negative impact on your credit score.

If you do chose a company for this purpose, and if you are in the United States, choose one that is a member of the Association of Settlement Companies (TASC). Ask for an initial consultation, and make sure you check with the Better Business Bureau. The fee charged should be paid on the amount of debt the company is able to reduce for you, not the total amount you owe. Choose a company that offers a money back guarantee, and make sure that it places your money in an insured bank account.

You can also attempt this same process without the benefit of a company doing it on your behalf.

2) Credit Card Settlement. Credit card debt can balloon out of control rapidly if you miss a payment or two. If you are in this situation, you may want to negotiate with your credit card company to reduce your debt. To do this, you need to prepare to present your case with a clear, honest reason as to why you are behind. If possible, obtain supporting documents, such as a medical report, accident report, or anything that can validate your story. If you have lost your job, show that you are actively searching for new employment. If you have missed one or two payments, you have likely already received a letter from your creditor. Call the person listed. If no one is listed, call the credit card company and ask to speak with someone in the Settlement Department. Explain your situation and ask if the company would be willing to settle for a smaller amount. Begin by offering 30% of what you owe, with the goal being a 50% reduction of your debt. If you are able to reach an agreement, ask the company to report to the three major credit bureaus that the debt has been paid in full. Once the debt has been settled, the company will then report to the credit bureau stating that the account was paid by settlement. This will let future lenders know that you are not a good credit risk. Like all the other options, this one also has points which need to be considered, and should not be taken lightly.

3) Debt Consolidation. With this option you hire a consolidator who negotiates on your behalf for the reduction of interest rates, and also for the forgiveness of associated loan costs. Again, this negotiation is based on the lender realizing that your other option is bankruptcy, in which case the loan would not be repaid at all. You then need to pay the reduced monthly payments as per the negotiated settlement.

4) Debt Management. In this option you make a plan to pay off your loan with the highest interest rate, and then pay off the one with the next highest rate, and so on. This helps you gain control of your finances by reducing rapidly growing payments due to high interest rates. This approach will require a clear budget and discipline to stick to it. The more money you are able to save, the faster you can repay your debts. Credit counselling services may be useful in setting this approach up with you.

Successful negotiation takes time, patience, and persistence. After you make your offer, wait for your creditor to accept it or counter-offer. Make it clear from the start that your motivation in settling is to improve your credit rating. Therefore, any settlement is dependent on an improved credit rating. If you reach agreement on the telephone, confirm the agreement in writing before making a payment. Have the creditor sign the agreement and return a copy to you before you send money. The signed agreement should outline the responsibilities of both parties.

Timing is important in obtaining a favorable settlement agreement. The creditor has no incentive to negotiate if the account is not delinquent. Only when the loan is in the collection department can successful negotiating start. If your cash flow problems are temporary, you can offer to make monthly payments of four percent of the balance of the account. Many creditors will accept this as an alternative to bankruptcy.

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