Bankruptcy is exploding across the U.S., with the Administrative Office of the U.S. Courts reporting a jump in personal bankruptcies being filed, up almost 50% from three years ago. If you’re considering bankruptcy because your debt has become too overwhelming, it’s important to understand you have other options.
Looking to get out of debt without destroying your credit for up to 10 years? Here are alternatives to consider.
Simplify With Debt Consolidation
One way to consolidate credit card debt is through a balance transfer, which means moving what you owe onto a card with a 0% introductory APR. This typically gives you 15–21 months without high interest charges, letting more of each payment go toward the actual balance instead of interest. Combining multiple cards into one also makes repayment easier to track, while making on-time payments and lowering your balances can help your credit score over time.
Turning Assets Into Cash
You can also free up money by selling your assets, like your car, home, or other expensive belongings. While this can be challenging due to sentimentality and the complexity of the assets being sold, it can also help you get out of debt. Be aware that proceeds from the sale may be subject to a capital gains tax, which can reduce the amount of money you were hoping to gain from a sale.
Call Your Creditors
Contacting your creditors can be a helpful way to prevent collections calls while giving you more tools to repay your loans. They may be able to put you on a hardship plan, lower your payments, create a more personalized repayment plan, or offer a settlement offer.
Tap Into Your Retirement Savings
A retirement plan loan lets you borrow against your own savings, often up to 50% of your vested balance, so you're essentially paying yourself back rather than a lender. Repayment is usually required within five years, and since the interest goes right back into your account, it's not lost the way it would be with a traditional loan. One note of caution: if you leave or lose your job, you may be required to repay the full balance much sooner than planned.
What to Know Before Considering Debt Settlement
While debt settlement companies may be able to help you reduce what you owe to your credit card company, the risks may not be worth the potential reward. These for-profit companies typically charge high fees, up to 25% of your enrolled debt. They also are known for advising people to stop paying on their credit cards completely while they negotiate with lenders, which will negatively impact your credit score and incur penalty fees. If the creditor decides not to settle, you now owe more money than you did before.
Consider Credit Counseling & Debt Management
Before settling on a path forward, it's worth talking to a credit counselor through a nonprofit certified credit counseling agency. Many offer free consultations and can help you build a budget tailored to your situation. From there, they may enroll you in a debt management plan, where they work directly with your lenders to lower your interest rate and roll your balances into one manageable monthly payment.
Whichever method ends up being the right fit, knowing your options can help you work towards a debt-free life more efficiently and effectively for your situation.