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5 Alternatives to Bankruptcy When Debt is Out of Control

Updated on February 14, 2014

Getting into debt is surely easier than getting out of debt. Who is not capable of maxing out a credit card or charging purchases at every opportunity with some sort of credit account? But just because you are up to your ears in debt does not mean the only solution is in claiming bankruptcy. There are alternatives to bankruptcy which should always be viewed as a last resort. Bankruptcy can have long lasting effects on your credit rating which in turn will cause grief for future borrowing potential.

Getting into Debt is Easy

Shop till you drop and pay by credit. Once too often and you could find yourself in severe financial hardship. Spend wisely.
Shop till you drop and pay by credit. Once too often and you could find yourself in severe financial hardship. Spend wisely. | Source

The First 5 Alternatives to Bankruptcy

There are more than the five alternatives to bankruptcy mentioned here, but the following are the easiest to explore. If you have found yourself in the position of considering the bankruptcy option, take some time to research some alternatives. Bankruptcy may provide instant short term relief but it can have devastating long term effects. It should never be taken lightly.

Think first about why you would risk ruining your credit rating and future borrowing potential for the ease of making it through a few weeks or months of difficulty paying off some serious debt. Is it worth it if some of these alternatives can be considered and pursued?

1. Communicate with your creditors

2. Debt consolidation

3. Mortgage refinancing

4. Use a third party company to negotiate debt settlement on your behalf

5. Increase your income to decrease your debts

Talk to your Suppliers

Making arrangements to pay back your debt may be all that's needed to prevent bankruptcy
Making arrangements to pay back your debt may be all that's needed to prevent bankruptcy

1. Communicate with your Creditors

Approaching your creditors may seem pointless if they have been hounding you to pay up or else. But the truth is, all suppliers simply want their money and mostly are open to negotiation. Give them a call or write them a letter explaining your circumstances. Offer repayments of a certain amount per month.

While you need to keep it realistic and something that will fit in with your other commitments, the supplier needs some sort of affirmation that the debt will be paid at an agreed amount in the stated time frame.

2. Debt consolidation

If things are really serious and you have a number of different suppliers wanting your money yesterday, debt consolidation can be a solution. In basic terms debt consolidation consists of finding a lender who is prepared to take up all your existing debt and pay the individual suppliers.

Your obligation is to pay an agreed and manageable amount so that your overall interest is reduced; thereby reducing the overall interest you have been paying on a number of smaller debts.

3. Mortgage Refinancing or Restructuring

There are several alternatives for refinancing or restructuring your mortgage. Many of us take out home loans without going into the finer details of getting a deal that suits us. Mortgages are mostly tailored to suit the banks or financial lenders. It is only once we start asking questions and asking for options that alternatives are provided.

4. Use a Third Party Company to Negotiate Debt Settlement on your Behalf

If debt consolidation is not an option and you have tried to discuss repayment options then using a third party company to negotiate debt settlement on your behalf may see results. This will incur further costs but using an external source for your negotiations can sometimes have positive results where you have failed.

Keeping in mind the ultimate goal is to get your debts paid without claiming bankruptcy, the cost of hiring someone to do the talking for you may be worth your while.

5. Increase your Income to Decrease your Debts

There are two ways to improve your financial situation. Increase your income and decrease your spending. In times of crises the simple solutions are often overlooked. Perhaps you only need another one or two hundred dollars a week to see your way clear of your mounting debts. A part time job could make this a reality.

Alternatives to Bankruptcy

If personal debt is becoming what seems to be an insurmountable problem there are alternatives to bankruptcy. Consider all the options before taking what may seem like an instant relief but could turn out to be a nightmare in the long term. Being bankrupt at any time in your life will have lasting effects for many years to come. Think wisely about the future as well as the short term relief before you make that decision.


© 2011 Karen Wilton

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    • Karanda profile imageAUTHOR

      Karen Wilton 

      7 years ago from Australia

      Thanks for reading Captain Spaceman. It's true people do get scared about the thought of bankruptcy and I think that's a good thing. You don't have to take that option unless it is absolutely the last resort.

    • Captain Spaceman profile image

      Captain Spaceman 

      7 years ago from Manhattan Beach

      5 great points about a topic that many people are scared to even think about. Very informative

    • Karanda profile imageAUTHOR

      Karen Wilton 

      7 years ago from Australia

      Good to see you're still afloat Vern. It's always better to explore other options before going down the bankruptcy road. I'm so pleased you found this informative. I hope it helps someone out there.

      Wednesday here, 6:00 pm. Everyone talks about us being down under and some days leave me feeling upside down. Thank you for stopping by.

    • vrbmft profile image

      Vernon Bradley 

      7 years ago from Yucaipa, California

      Wow, I wasn't sure I even wanted to begin reading this one. thought for sure it was going to be more complicated than I could handle, given that I am up to my ears. But I like the simple suggestions and I am beginning to explore several of those options.

      You present a difficult or a guilt producing topic in a non judgmental and informative and interesting way.

      THANKS FOR THAT.

      It is 9:58 PM and i forgot for a moment what day it is. TUESDAY!! Take care down there or are you up there?

      Maybe if I moved down there, I'd be a day ahead of my debt!

      Vern

    • Karanda profile imageAUTHOR

      Karen Wilton 

      7 years ago from Australia

      Bankruptcy may seem an easy way out but it can have lasting consequences. Better to find an alternative if at all possible. Thanks for the comment Kristine.

    • KristineWrites profile image

      KristineWrites 

      7 years ago

      Super helpful. I think bankruptcy is an easy way to wipe out your bills, but it's totally not.

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