Options to Consider Before Declaring Bankruptcy

2 Min. Read

When you’re overwhelmed by debt, filing for bankruptcy can offer a fresh start. But it’s important to understand that it also carries long-term credit and legal consequences. Before declaring bankruptcy, explore other debt-relief strategies that may cost less, preserve your credit, and get you back on track.

Pre-Bankruptcy Options

1. Credit Counseling. Talking with a non-profit credit counselor is a great first step toward a do-able plan. They can help you map your income, expenses, and debts and create a solid plan for repayment.
2. Debt Management Plan (DMP). Rolling multiple unsecured debts into one monthly payment with negotiated lower rates can be a more manageable way to tackle your outstanding balances.

Learn more about the process of Creating a Debt Management Plan.

3. Debt Consolidation Loan. Combining balances into a single loan at a fixed rate can simplify your payments and potentially lower the amount of interest you pay.

Learn How Debt Consolidation Works and whether it may be the right solution for you.

4. Debt Settlement and Debt Relief Companies. It’s possible to negotiate with creditors (on your own or using a settlement firm) to pay less than you owe in a lump sum or short-term plan.

5. Direct Creditor Negotiation. You can also contact your card issuers or lenders directly to inquire about hardship programs. They may be willing to work with you to lower your interest rate or pause payments.

Get strategies for negotiating your debt in our guide, How to Talk to Creditors and Debt Collectors.

6. Balance Transfers and Introductory APR Offers. You may consider moving high-rate balances to a 0% or low-rate card temporarily. If you just need a little breathing room, this can help you tackle your principal balances.

7. Sell Non-Essential Assets or Increase Income. Boosting your income is another way to knock down your looming debt. Consider a side gig, garage sale, or short-term freelance project to earn extra funds.

Get more ideas to Boost Your Savings and Increase Your Income.

Remember this: bankruptcy isn’t your only way out. Exploring credit counseling, consolidation, management plans, settlement, and direct negotiations may lead you to a more cost-effective solution that mitigates long-term impacts on your financial situation. Review each option, seek professional guidance, and choose the path that aligns with your financial goals.