Daniel Hannan, a British journalist, author, and member of European Parliament, once said that, “You cannot spend your way out of recession or borrow your way out of debt.” Although he is absolutely right, unfortunately too many people take that route when trying to eliminate debt.
Debt is a common aspect of many people’s lives, to the point where they no longer live from paycheck to paycheck, but from paycheck to paycheck-after-next. The biggest problem is that debt is no longer a reason for embarrassment, but in many social circles is an accepted lifestyle.
When you go into debt, it is like putting yourself in financial prison. Unlike board games that offer a “Get Out of Jail Free” card, there is no zero-cost way for you to free yourself from the bonds of being in debt. And if you are lucky, you can get out before bankruptcy is your only option.
The Pitfalls of Succumbing to Debt
Whether you are filing for Chapter 7 or Chapter 11, there are so many disadvantages that come with having to declare a loss of that size. Not only will you most likely lose your credit cards and other non-essential possessions, but you also face the risk that not all of your debt will be discharged.
Can you imagine how horrible that would be? The best way to avoid that fate is to take precautions against it now while there is still time. Here are some suggestions for getting out of debt and getting on the path to a better financial future.
- Sell off some assets. As soon as you cannot make payments on something, then it is time to break free of it. Sell it and use the money to pay off the debt, whether it means losing the sports car that does not hold your entire family anyway, or downsizing from a McMansion style home to a reasonably priced cottage.
- Eliminate non-essential extras. Do you need that cable or satellite package that offers every last television channel known to humans? Can your family survive downgrading to an internet plan that boasts slower speeds? Instead of an expensive outing at the movies, rent something from RedBox instead. You can save a lot by cutting out the extras.
- Settle with creditors. Believe it or not, your creditors want to help you. They would rather get some money out of you than have you completely default on your account. Ask them for help by lowering your monthly payment or interest rate — or if you are lucky, both!
- Ask family and friends for help. Borrowing money from friends and family is almost always a bad idea. However if your debt is severe enough, then it is the only exception to that unspoken rule. Calculate how much you need and develop a plan for how to pay them back before asking, to show you are serious about repaying their generosity.
- Seek credit counseling. The Federal Trade Commission’s website states that anyone planning to file bankruptcy must obtain credit counselling within 180 days prior to filing, as well as have a complete debtor debtor education course before any debts can be discharged (http://www.consumer.ftc.gov/).
When looking at the things you can do to eliminate or even erase your debt, do not pick and choose one or two things. Do everything possible to eliminate as much debt as you can! The less debt you have, the less risk that you will find yourself making an appointment with a lawyer to file either Chapter 7 or Chapter 11.
When Trying Is not Enough
Sometimes even the best efforts fail. Perhaps you waited too late, or perhaps your creditors were unwilling to work with you to reduce down how much you owe. Regardless of the reason, now you find yourself face to face with lawyers and court dates, not to mention the shame and embarrassment of facing your friends and family with the news.
There are some advantages that come with filing, and a lawyer can explain those to you in more detail. Some examples include the fact that your creditors will stop harassing you for money and, for many people, it is a financial “do over”, allowing you a fresh start with all your accounts.
But despite the advantages, bankruptcy takes up to six years to disappear from your credit report. If you are able to avoid this financial fate, then by all means try to eliminate your debt!
Freelance writer Melissa Cameron’s friends and family joke that she is like a walking infomercial. She knows something about everything! No matter what she knows off the top of her head, when writing articles for her clients she fact checks using reputable sources like www.travisblacklaw.com. When she isn’t working or spending time with her family, Melissa enjoys knitting and yoga.