There is just no easy way to get out of debt, you have to face up to the
consequences. A bankruptcy is not always the answer, as the effects are long
lasting. There are four ways to handle debts that are out of control, listed
in best to worst in regards to the effect it will have on your credit:
- If your credit isn't in terrible shape, can you reduce your other
expenses, even if it means making hard choices or just change your
lifestyle to fit your income? Some ways to do this:
- Selling the second car
- Pulling equity out of your home
- Applying for a non-secured signature loan
- Loan from a relative
- Selling your home and paying off your debts with the proceeds and
then renting
- Cashing out your 401K/retirement benefits
- Selling family heirlooms/jewelry/guns
- If your credit is already gone or one of the above isn't an option, go
through Consumer Credit Counseling Services (CCCS). Check your yellow
pages for the local number. In this way you're paying off your debts as if
you were in a Chapter 13 BK, but you don't file a BK.
- If CCCS won't take you, you may want to consider bankruptcy. Doing a
Ch 13 takes longer, but your credit is in a little better standing than if
you do a Ch 7. In the Ch 13 they give you up to 5 years to pay off your
debts. The disadvantage is that you're in BK for up to 5 years plus your
credit report shows your BK for 7 more years after you have finished
paying off your debts.
- If you are so far in debt that you can never repay it, then the best
solution may be a Chapter 7 BK. A Ch 7 is the least desirable credit-wise,
but you are typically out of BK in 6 months and you don't have to repay
any debt. The disadvantage is that this shows on your credit report for 10
years from the date of filing your BK, and creditors are starting to
tighten their credit requirements, and you may have a tough time getting
future financing.
There is no magic solution. Don't believe
anyone who tells you otherwise.