When it comes to debt, at some point, bankruptcy can feel like the only way out. However, there are many options available to you before you file bankruptcy. What about debt consolidation and management? We cover a host of options, and each one has its own pros and cons. They also depend on your specific situation, meaning not all options are feasible for you. However, a trustworthy accountant can help you to navigate an alternative solution that works for you to avoid filing for bankruptcy.
Table of Contents
Your best course of action when it comes to managing debt is finding a way to repay it on your own. Having a clear budget that outlines the things you have to pay and the debt you currently hold can help you better understand where your money is going. A budget can help you keep better control of your money and make sure you’re putting some focus on debt repayment as a vital part of your monthly financial budgeting. With any budget, you can also see how long it may take you to pay off your debt based on monthly payment amounts and interest rates. If you need help creating a clear budget for yourself or your company, an accountant or financial advisor can help.
Sure, ignoring your debt and playing the out of sight out of mind card is an option. We don’t recommend it, but it is an option. If you’re not working, creditors can’t garnish your wages. This plan is contingent on you not owning any assets for creditors to collect, though. You can see why this isn’t a great plan of action. All it does is buy you some time if you have nothing.
If ignoring your debt or repaying it on your own doesn’t work for your current financial situation, look into refinancing as an alternative to bankruptcy. Debt consolidation loans work by consolidating all of your streams of debt into one lump sum, often at a lower interest rate. If you have multiple debts at higher interest rates, such as credit card debt, consolidating this debt with a lower interest rate can save you mountains of money in interest. This plan is contingent on you having a strong enough credit score to qualify for a loan to consolidate all of your debt under.
Debt Management Plan
A credit counselling agency is a non-profit credit counsellor that can help you create a debt management plan with lower interest. This is the ideal course of action if your debt itself is manageable, and it’s simply the interest that’s making repayment difficult. This is a smart way of consolidating your debt if you don’t qualify for a refinancing loan, as mentioned above. There’s no relief on the principal amount owed in this solution, you must repay your full debt amount.
If you simply can’t manage to repay all of your debt, even with help on interest amounts or extending the time frame of repayment to lower your monthly payments, you can try to settle with your creditor. This solution involves direct negotiations with your creditor who may decide to accept a lump sum instead of waiting for the full amount to be paid off. This is generally because they fear the risk of you filing for bankruptcy and not paying anything at all. These scenarios sometimes see people only having to pay 50% of your debt. This solution still causes damage to your credit score and only works if you can afford a one-time lump sum payment of a portion of your debts. Keep in mind that some “debt settlement companies” aren’t always trustworthy and could end up charging you more money in the long run.
This is your final alternative to filing bankruptcy. A consumer proposal is filed through a licensed consumer proposal administrator. This proposal essentially negotiates a settlement for a portion of your total debt. If none of the other alternatives to bankruptcy work for your specific situation, this option can mean you pay only a portion of your debt and over time, instead of all at once. You may be wondering why a creditor would even accept an offer like this, but the answer is simple. They’d rather get a portion of your debt paid back than nothing if you declare bankruptcy.
There are a lot of alternatives to consider before bankruptcy. Which option is right for you will depend on your current financial situation, your specific debts, and a range of other factors. Making decisions about debt repayment can be very difficult on your own because of the emotion and financial fears involved. Asking for help from a trustworthy accountant can help you ease some of the stress surrounding debt repayment and management. Give us a call today to see what solutions are available to you.