It is possible to erase your debt without bankruptcy? It takes good financial management of your resources and may require negotiations with your lenders.
There are some paths to take that might damage your credit rating yet the damage will be far less than the ten years a bankruptcy will affect your credit score.
If your goal is to erase your debt without filing for bankruptcy the first thing you must do is face the problem and evaluate your options. Dealing with a financial crisis is never pleasant.
For that reason, many people avoid looking at the problem and hope things will improve. It won’t work and failure to take action to solve your financial crisis may force you into a bankruptcy you don’t want and could avoid.
Ask Your Lenders for Help
Contact your lenders. Do this as soon as you realize you are going to have a problem paying your monthly bills. Ask to have your interest rate reduced to a reasonable level.
If you have been paying reliably for some time on your debt and have an explanation (illness, job loss) for current financial problems, many lenders are willing to lower your payments by reducing your interest rate.
This is not guaranteed and neither begging nor threatening will help. If you calmly present your case to a reasonable lender, there is a chance you can obtain a more favorable APR that will lower your payments and help you pay down principal on your debt.
If you have lost income and cannot pay even your monthly minimum payments yet have some funds at your disposal, you may try to negotiate a debt settlement with one or more lenders.
This option requires patience and you will be expected to provide proof of your claims of income loss and of your inability to pay the full amount due or to keep up with the monthly payments.
Lenders do not like to negotiate payoffs for credit card debt. However, the continued rise in the number of people who are filing for bankruptcy because they are unable to pay credit debt has led lenders to be more flexible in negotiated debt settlements.
If you have a balance of $9000 on your credit card at 21% APR, your monthly payments would be almost $250/month. If you are unemployed you may have only enough income monthly to pay for housing and food.
The lender knows the next step for you may be filing for personal bankruptcy. If that happens, your lender may be paid cents on the dollar for the debt or may have to write off the entire $9000 as dismissed by bankruptcy.
If the lender is convinced you are trying to erase your debt without filing bankruptcy, he may be willing to accept a one time payment of a lesser amount and mark the account paid in full. In the lender’s view, collecting some of the money due is preferable to collecting $0.
Use a Snowball to Eliminate Debt
The Snowball Method has been widely discussed as the best method to eliminate debt. This is an option if you are able to pay the minimum amounts but unable to buy a home or car due to excessive debt. It is also an option if your debt is skewing your budget every month with no end in sight.
List your credit cards, the interest rate on each, and the balance of the debt on each credit card account. Put them in order with the highest interest rate at the top and the lowest interest rate at the bottom.
Look closely at your income and expenses and eliminate any payments you can cut. Often we have monthly expenses that we pay without thinking. Do you need unlimited cell phone minutes and text message every month for each member of your family?
Can you stop visiting video stores and use online movie rental sites for entertainment? How many cable channels can you – or do you – watch?
Cut out all the fat in your monthly budget and allocate specific amounts of cash to spend weekly on transportation, food, entertainment and other expenses. The goal is to find extra money to pay each month on one of your accounts.
Eliminate debt without filing bankruptcy by paying only the minimum due on all of your credit card accounts except the one with the highest interest rate.
Extra Money
Apply all the extra money you found in your budget to that one high APR account along with the standard minimum payment. This will pay off even a high amount of debt in months rather than years.
When the first credit card debt is paid, take the money you were paying (the total amount) monthly on that debt and add it to the minimum payment of the second credit debt on your list.
The Snowball method of credit card debt repayment will require diligence on your part. You will need to stick to a strict budget for the entire time you are paying off debt.
The upside is that each debt paid adds a high amount to the next credit card payoff on your list and the pace increases as you go. You will be able to pay off your debt more quickly than you could imagine.
While you are making these monthly payments, you are not harming your credit rating and as each debt is paid in full your credit rating will improve. When a credit card is paid off, do not cancel the account immediately.
Summary
You can eliminate debt without filing bankruptcy either by exercising control over your spending habits or with the help of lenders who might be willing to work with you to help you avoid defaulting on your debt.
