How do the consequences of bankruptcy alternatives compare?
Posted On June 27, 2023
Let’s talk about how to avoid bankruptcy and what you can expect to happen in each situation. Some options are more favorable than others, and once you’ve explored all your options for getting out of debt, bankruptcy may be the best option after all.
1. make more money
This is a no-brainer actually. When you’re looking to get out of debt and avoid bankruptcy, the best thing you can do is make more money. I know, this is easier said than done, but have you really explored creative and innovative ways to increase your monthly income? Here are some of my suggestions that have helped previous clients:
- Rent a room to generate rental income;
- Get a second job;
- Ask for a raise at your current job;
- Put the children to work and if they are working, STOP PAYING THEIR EXPENSES;
- Host a garage sale or sell outdated items on Craigslist;
- Start a side business by repairing or repurposing items for resale
2. cut expenses
There are only two sides to the budget book; income and expenses. Another best strategy is to not only increase your income, but also reduce your expenses. Any money left over can go toward paying off debt and avoiding bankruptcy. Here are some often overlooked ways to reduce expenses:
- Transportation: Reduce transportation costs by taking public transportation to work. You would be surprised to find that your stress will decrease with public transportation. If you plan to drive, make sure your car is well maintained and paid for. Maybe you need to downsize and get a cheaper car that is paid off to lower your car payments.
- Insurance: Home and auto insurance costs can be reduced by looking at the number and type of insurance policies you have. If your car is older, consider dropping any physical damage coverage (comprehensive/collision) and keep only liability. Insurance policy liability limits only need to be enough to protect your assets. So, if your car and home have no equity, then you don’t need a high-limit insurance policy. Also, look into insurance.
- Utilities: Turn off lights and air conditioning. Cut the mobile phone bill or cut the landline. Call each company to reduce services that will lower your bills or lower your bills altogether.
- Groceries: Take advantage of coupons only when it makes sense by buying your shampoo, soap, toothpaste, dishes, and laundry items with coupons. Paper products are another great household item to buy with a coupon. Reduce your grocery bill by planning your weekly meals before you shop and consider other meals for which you can use similar ingredients. Cooking at home can not only save you money because it’s cheaper than dining out, but it can also help you live healthier.
The consequences of budgeting by increasing income and reducing expenses are that it is a long-term lifestyle commitment that could take more than five (5) years to pay off all your debts. Even after you max out this strategy and apply all of your available income to the debt, it may not be enough and you’ll still be facing bankruptcy. However, I still believe that knowing your numbers is an important step in financial transformation and debt elimination, no matter which direction you take.
3. debt payment
If you’re behind on your credit cards, they can be negotiated; sometimes for pennies on the dollar. This may seem like a money-saving strategy, but it can leave your credit score in shambles. First, you’ll need a sizable savings account so that when you settle, you can pay a lump sum to pay off the debt. Be sure to get any settlement in writing and ask them to remove the business line from your credit report. You may not get a credit clean, but it also doesn’t hurt to ask. This can be an effective debt elimination method if you only have one or two debts to work with. Any more than that and a bankruptcy case would be a cheaper, better and faster way to get out of multiple debts at once.
The consequences of debt settlement are that not only will you pay off the debt, but your credit may be negatively affected as a result.