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When you’re in over your head, behind on your bills, and creditors are calling, what do you do? Is bankruptcy the only option? Definitely not. Bankruptcy is not a magic bullet, and there are many alternatives available to people with unmanageable debt. Aside from taking out money loans with no interest, here are a few helpful solutions that you can apply today to improve your financial situation without filing for bankruptcy.
- Look at how you manage your money
The first thing to realize is that you have to fix the cause of the problem, which is often mismanagement of funds. Try and cultivate a better relationship with your finances by paying bills on time, developing a budget, and working on improving your credit score.
Keep in mind that your payment history plays a huge role in determining your credit score. Once you improve that, you can refinance and get a better interest rate on your monthly bills. This will make it far easier to afford your monthly payments.
It’s important to have a budgeting plan so you don’t go down the same path. After that, keep it simple and only use one credit card if necessary to keep your monthly payments manageable.
- Be savvy with your credit card
If you’re going to use a credit card, use it wisely. That means spending the smallest amount possible and paying it off in full every month to avoid interest. That way, you’ll manage payments better while enjoying credit card rewards. Make it a priority to avoid making minimum payments on your credit card because that just keeps the interest compounding, thus prolonging the time it’ll take you to get out of debt.
- Try a debt restructuring plan
A debt restructuring plan requires that you file a “consumer proposal” instead of filing for bankruptcy. You’re basically filing for the resolution of the debt at 20 to 25 cents on the dollar relative to the total amount owing. This is done through a bankruptcy trustee, and the great thing about a consumer proposal is that it carries 0% interest, which makes it easier to pay off the final amount agreed upon.
- Consider a debt management service
Work with a debt management agency to negotiate lower rates with your creditors. This can significantly decrease your monthly payments and take the pressure off your budget. Once you’ve worked out an agreement with your creditors, you’ll pay a fixed amount to the debt management agency each month, which they will distribute among your various creditors.
Of course, you have to pay the agency a monthly fee for their services, but this is usually a nominal amount. Many agencies offer value-added services like financial counseling to help you manage your finances better. In the meantime, you won’t be allowed to open a new credit account until you complete the debt management program.
- Prioritize your debts
A common mistake people make is not prioritizing their debt payments. It’s important that you have a focused approach when paying off your debt and that you follow a well-thought-out plan.
For instance, when creating a budget, start with necessities like food, utilities, school fees, rent, and transportation. Then, start paying off the debt with the highest interest rate, followed by the second highest, etc.
From student loans to car payments and credit card expenditure, there are many factors that can contribute to a difficult financial situation. At times, it can seem like the only way out is to file for bankruptcy. However, if you find yourself in this situation, be sure to keep an open mind and consider all the available options.