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Sometimes people can find themselves deeper in debt than they feel they have the ability to get out of. This can be a depressing feeling, even stressful when the phone starts ringing with calls from aggressive customer service personnel and bill collectors. Filing for personal bankruptcy might seem like a quick fix to some, but it definitely is not the easy way out. It is devastating to your credit score rating, as it stays on your credit record for 10 years or longer. Finding other alternatives to personal bankruptcy is considered a better way to go. There are a surprising number of things that can be done to avoid resorting to personal bankruptcy. Self-discipline is a definite plus.
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Home Equity Loan
Homeowners that find themselves in difficult financial straits, and have fair credit, might be able to consolidate their debts with a home equity loan, also called a second mortgage. Having to pay just one creditor instead of many is simpler, and there can be a cash savings concerning fees and charges, and the payment can be lower than the sum of all the monthly payments that you were paying before. These are secured loans that use the equity in a home as collateral for repaying the debt. They are arranged to be paid over the course of 10 to 30 years at lower rates than those of unsecured credit cards, and 80% of the homes equity isn't an unusual amount for the loan. Also, be aware that a house is being used as collateral, and that any problems paying the loan could put it in jeopardy.
There are lenders that provide loans for people with imperfect credit. Lists can be found online and elsewhere. Before dealing with these companies check them out with the Better Business Bureau, local consumer protection agencies, and the state Attorney General.
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Debt Transfers to a Credit Card
Another alternative to reducing monthly payments and credit costs is to transfer all of a person's credit card debt to one low-interest credit card. Some people do have untapped credit on credit cards with high spending limits. Other credit card balances, and possibly, even the remaining balance of a car loan, can be transferred to one of these. It's a welcome relief to have just one lower monthly payment to be paying, and there is variability to how much a person can pay beyond the minimum required amount. This increases the monthly cash flow ( cash on hand), and can keep someone out of bankruptcy if he, or she has a job. The higher the monthly payment, the closer the debt is to being removed.
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Negotiating with a lender for lower interest rates and payments can be a viable alternative to personal bankruptcy. They might be open to the idea of getting some kind of return from an account now rather than waiting years, or risk walking away empty-handed in a short while. Telling them how difficult it is to be making the payments at the moment might get them to modify your payment plan to a more manageable level.
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Continue reading on page two for other alternatives to personal bankruptcy.
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Other Alternatives to Personal Bankruptcy are Available for Managing Debt. Other alternatives to personal bankruptcy involving third parties are sometimes in order when trying to manage debt. What are these alternatives, and are they a viable option? Read on to learn more.
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Credit counseling is generally for people who can't create a monthly budget, or aren't disciplined enough to keep their spending within budgetary limits. Reputable credit counseling services provide certified debt counselors who will work with a debtors to help them manage their money, and create a budget planned around their financial situation. They also provide educational materials and workshops at no cost.
Most credit services call themselves "nonprofit", but that is no guarantee that there won't be fees. Also, research should be done before selecting one. Good sources for this are the Better Business Bureau, state Attorney General, local consumer protection agencies, and possibly reviews on the Internet.
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Debt Management Plan (DMP)
A Debt Management Plan is an agreed upon arrangement between a debtor, the creditors, and a credit counseling service. It allows for the creditors to be paid with disposable income that is available after all of the debtor's actual expenses have been paid according to a budget developed for this purpose.
The counseling service acts as an intermediary between the debtor and the creditors. The money is given to the counseling service, and is distributed to the creditors. This provides a smoother degree of communication free from tensions, and any other negative instances that might arise otherwise. It also provides the creditor with confidence that something is actually being done according to a plan.
A Debt Management Plan doesn't damage a credit score rating, and will just show up as a notation on the credit report. They aren't for everyone and should be considered after working with a certified credit counselor to receive customized advice.
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Debt Negotiating Programs
Debt consolidation is offered by many companies offering to negotiate with creditors and claiming to:
- reduce debt by as much as 50%
- lower, or eliminate interest rates and late fees
- quickly eliminate the entire debt
This can be quite risky, as there is much room for deceptions. Many states do have laws regulating debt negotiating companies. It would probably be a good idea to contact the state Attorney General, and perform other research before considering this alternative to personal bankruptcy.
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Bankruptcy is a legal process that usually involves retaining the services of an attorney for counseling. It is not a quick fix. It affects a credit record for 10 years, or more, making obtaining loans very difficult. Finding other alternatives to personal bankruptcy is considered to be a much better plan.
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Author undisclosed, "Bankruptcy Alternatives," The Bankruptcy Site, 2010. Retrieved from the World Wide Web: http://www.thebankruptcysite.org/alternatives
Federal Trade Commission, 2010. Retrieved from the World Wide Web: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtml
Steve Bucci, "Debt Management Plan Trumps Bankruptcy," 2010. Bankrate.com, 2010. Retrieved from the World Wide Web: http://www.bankrate.com/finance/debt/debt-management-plan-trumps-bankruptcy.aspx
Justin Harelik, "10 Ways to Dodge Bankruptcy," 2010. Bankrate.com, 2010. Retrieved from the World Wide Web: http://www.bankrate.com/finance/debt/10-ways-to-dodge-bankruptcy-in-2010.aspx
National Foundation for Credit Counseling, http://www.nfcc.org/