Bankruptcy is considered one of the top life-altering negative events a person can experience. If you are in a bad financial position and cannot seem to find any way to pay your debts and your monthly bills, declaring bankruptcy may seem like your only option. However, there are some steps that you can take first to try to mitigate your situation and avoid having to declare bankruptcy. These strategies can help you get out of debt and reduce the risk of having to declare bankruptcy in the future.
Try To Settle Your Debts
If you have a high debt to income ratio, you may be able to settle your debts with your creditors before having to give up your property and assets in a bankruptcy. This allows you to pay a lesser amount to eliminate the debts, clearing the debt and preventing you from being sued in the future. You can also try to consolidate your debts into a single loan with one monthly payment at a lower interest rate, which will save you money and make paying off the debts easier.
Cut Expenses As Much As Possible
Reducing or eliminating expenses is the most surefire way to save money. Most people will be able to save a significant amount of money by reassessing their budget and getting rid of unnecessary expenses, like dinners in restaurants, gym memberships, and entertainment tickets. Start living within your means and spending less than you earn, and the savings will add up.
Refinance Your Mortgage
If you are paying off your home, refinancing your mortgage may help make your debt more manageable and can help you avoid bankruptcy or foreclosure. Try to negotiate an agreement with your housing lender to reconfigure your mortgage under a new payment plan or apply for a refinanced mortgage loan with a lower interest rate extended over a longer period of time. The money you save will be useful in paying off your remaining debts.
Sell Non-Essential Property
If you are in debt, consider what you can afford to part with to raise some extra money and use that money to pay down your debts. Chances are that there are items laying around your home that you do not use frequently and can afford to part with, like rarely used DVDs and video games, small kitchen appliances, or gently used clothing. By selling these items on Craigslist, eBay, or a public auction, you can earn some of the funds you need to pay down your debt.
What ways have you used to avoid bankruptcy?
Join our newsletter
Subscribe to get the latest "Engineer Your Finances" content via email.