Avoid Bankruptcy: 5 Ways to Pay Down Debt

computer-buy-money-banknotes-163056Personal bankruptcy can be a serious life-altering events an individual can experience, alongside divorce, severe illness and tragic loss, according to the financial guru Dave Ramsey. Bankruptcy is seen as a last resort, a life raft when the ship is sinking. Essentially it’s something people have to do when the debts become too unbearable to repay.

When I was in high school, a close family member of mine had to file for bankruptcy after getting their car totaled and being unable to pay off the remainder of the loan. It takes years for a bankruptcy to be removed from your record and it can really knock down your credit score.

That being said however, bankruptcy is not as bad as many think it is. However, it can ruin a person’s good credit. Though there are instances that you would absolutely need to hire a debt and bankruptcy lawyer, the ideal scenario is to avoid the situation altogether.

There’s only one way not to go bankrupt: pay down debt. Do not allow your debts build up into one huge, unaffordable pile. Instead, consider the following suggestions for repaying your debt and keeping interest under control

1. Spend Less Than You Earn (Mind Your Budget)

When you are in debt, you cannot afford to waste money. Every penny you earn must be spent wisely. Therefore, you need to draw up a monthly budget. Create a monthly expenses chart. You can categorize your expenses under food, utility bills, mortgage, entertainment, and so on. You should be able to clearly distinguish necessary expenses from the unnecessary ones using this chart.

For now, eliminate the unnecessary. This would mean not eating out anymore or spending money at the spa. Instead, use that money towards repaying your loans. You will have to stay this frugal for two or three years.

2. Refinance Your Mortgage

It’s the mortgage that most people struggle to repay. Reverse mortgages are unconventional personal loans that are taken out based on the value of the borrowers’ homes. If you own your own home then you may want to apply for this sort of loan because you don’t have to pay it back until you leave your home. You can also collect the money you need from the loan in smaller or larger amounts, as needed.

So, whether you suddenly find yourself deep in debt or just want to take care of some home repairs you have been neglecting, this type of loan can take the pressure off. The ability to choose how much money you get, when you get it, and when you pay it back will allow you to use a reverse mortgage to boost your retirement income in a stress-free way.

If you are coming up short on your mortgage payments, you could be in serious trouble. If you miss mortgage payments, you risk losing your home. So, if you find it difficult to make your monthly mortgage payments, contact your bank or the institution that gave you the loan. You can restructure your mortgage in a scheme known as mortgage refinancing. You can negotiate a new monthly mortgage payment plan that you can actually afford when you refinance your mortgage.

3. Consider Consolidating Your Debt

If you have numerous small debts, you can consolidate all into one. This will help you pay a single fee and an interest rate each month. If you have several high-interest loans, debt consolidation is a very good option to consider. You can reduce the amount you pay as interest and pay down multiple loans at once with debt consolidation.

4. Negotiate with Lenders

When you have trouble repaying loans, don’t ignore the creditors. That will only make the situation worse. Instead, call up the creditors and try to explain your situation to them. It’s not in the best interest of the lender for you to go bankrupt and default on a loan.

Creditors are open to suggestions when a borrower truly cannot repay a loan. You may be able to negotiate a write off, new rates and charges.

5. Sell Some of Your Items

You should realistically assess your debt. If you think you might go bankrupt, there’s a good chance that you will. If you do go bankrupt, the creditors will own all your valuables, like land or antiques. Therefore, you can benefit the most by selling off valuables when you are on the brink of bankruptcy. Use the cash to pay down debt.

No one anticipates going bankrupt. But it can be an inevitability when you have trouble repaying your loans.

Have you ever considered filing ofr bankruptcy before? Which one of these things have you done to help you get a better hold on debt payoff?

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