Before Bankruptcy: What Credit Counseling Can Do For You

Many people who are considering filing for bankruptcy for debt relief prematurely. It is not uncommon for those who are carrying a significant amount of credit card debt as well as other debts like student loans, a mortgage, and auto loans, to feel saddled down with debt. It can be a struggle to pay even the minimum monthly payments, and you may feel like you simply will never be able to repay the amount you own on your credit cards. While bankruptcy is one option that can provide debt relief, it is not the only solution available to you. Other options for debt relief may allow you to better manage your debts without the long term credit effects associated with bankruptcy.

Credit Counseling

Your first step before considering bankruptcy further should be to contact a credit counselor and explore other options available to you. A counselor will review your current debt structure, and he or she may suggest several different options that can help you to reduce the amount owed and that can help you to pay your outstanding balances off more quickly. Often, working with a professional counselor can help you to establish a repayment schedule that may help you to pay off your credit cards within approximately two to five years.

Debt Settlement

One option a credit counselor may suggest to you is debt settlement. Through this option, your counselor or a professional negotiator may work with your credit card companies to negotiate a reduction to your outstanding balance as well as different repayment terms. Many creditors who learn that you are having trouble making ends meet and are considering bankruptcy will agree to a reduction in balance. Keep in mind that if you file for bankruptcy, they may not recoup any of the outstanding balance, and so a settlement is in their best interest. If a reduction in debt is agreed to, you should be aware that this may appear negatively on your credit report. However, it is often viewed more favorably than a bankruptcy would be viewed on your credit report.

Credit Card Consolidation

You can also consider the option to consolidate credit cards into a single loan. When you consolidate credit cards into a single loan, often you will obtain a fixed interest rate that is lower than what you are currently paying, and this often reduces your monthly payments. Further, this type of loan can be obtained with a fixed term, so your outstanding debts are repaid within a certain number of years.

As you can see, there are several options available to you for repaying your debt and making your debt more manageable before you consider bankruptcy. If you are considering bankruptcy as a possibility today, you should first talk to a credit counselor about some of the other options available for managing your debt.