Options For Those Drowning In Debt

Drowning in Debt.  You have options.

You’ve done it.  You may have done it again after swearing you wouldn’t.

Maybe you even filed Bankruptcy before because of it.  Despite your best intentions, you’re saddled with credit card or other debt, struggling to stay afloat.  You try to carry on, but you’re not making any progress.  You’re one big car repair or other unexpected expense away from serious financial trouble, or you’ve already experienced that.  Now you don’t know what to do.

We get it, and understand everything you’re going through.  The question is, what are you going to do about it?  

As we see it, you have four options.  Each may offer advantages or disadvantages depending on your situation.

Do nothing, keep a stiff upper-lip and carry on.

Sounds very British, but in reality won’t likely change your situation without either a change in life’s circumstances (getting a windfall or a higher paying job) or spending habits.  If you make an adequate income, your problem might be able to be fixed with better money management.  Can you cuts your spending and devote the funds to start paying off a debt?  Look at things like eating out, shopping habits, or expenditures on things that are not really necessary.  If you can do this for a little while, you might be able to get out debt.

Borrow money from another source to try to get out.

This is likely only a stop-gap measure, unless you “borrow” money from a person you do not have to pay back.  Otherwise, all you’re doing is just delaying the inevitable.

Try a debt settlement program.

The commercials for the debt settlement programs sound like they may offer help.  The debt settlement companies fail to tell you, however, is once you start with these programs and stop making payments to your creditors, all the late payments get reported to the credit bureaus.  The late payments tank your credit scores and stay on your credit report for 7 years. 

Plus, if they are able to negotiate a reduced payoff to a creditor, the amount that is written off will likely become a taxable gain to you.  If you owe $20,000 and somehow end up having this amount settled for $8,000, the $12,000 written off will be treated as income.  In short, you will owe taxes on the $12,000.

So, to recap, you are able to reduce the amount you owe, but you seriously end up jacking up your credit and then get an unexpected tax bill.  Not exactly a great solution after all.

Bankruptcy.

Filing Bankruptcy immediately stops the harassing calls.  If you qualify for Chapter 7, you get out from under the burden on making any payments on most accounts.  The discharge usually comes about 3 months after you filed your case.  Many people will notice a quick improvement on their credit scores, and often start rebuilding their credit right after the discharge.  The amount of debt that is discharged does not trigger a tax bill, unlike a debt settlement program.  It is also common that people who filed Bankruptcy are able to increase their credit scores to between 680 and 720 within 2 years of Bankruptcy.  To learn more about whether this is a good option for you, please review the pages of this site or call Henderson Bankruptcy Attorney Shawn Christopher to arrange a free consultation.