Financial pitfalls, in general, can lead to extremely stressful times. This can be aggravated in an environment of poor economic conditions. Therefore, in such situations, the last thing you need to worry about is your debts. Debts can have a particularly negative impact on your way of life and if you have been stocking up on your outstanding bills, you may soon have to take some decision pertaining to the repayment of the same. If you are unable to repay your debts within a 6 month mark, you may have to seriously contemplate a system that will get you out of this financial mess. Most people in such a situation may fly off their handle and file for bankruptcy without giving it much thought. While bankruptcy can be considered, you also need to weigh in your other options. Debt settlement, for one, can take you out of this messy situation with a little added effort. However, you need to first analyse your financial situation to make a better decision. Given below are some tips that will help you in the process and make things easier for you.
1.) Get access to your credit report:
When debts are overflowing, it is important to know exactly in how much troubled waters you are. the best way to do this is by getting access to your credit report.this credit report will give you a detailed picture of where your payments went awry and the likes. However, you also need to keep a close eye to ensure that the information provided in the credit reports is completely accurate and true. This is important as reluctance to scrutinize this can cause you to pay debts that you do not owe in the first place. As a rule of thumb, you can get free access to your credit reports on a yearly basis.
2.) Draw up a list of your debts and counter it with a separate list of all possible incomes:
Before you jump the gun and file for bankruptcy, it is advisable that you understand your expenses and income well. For this, analyse your credit reports and draw up a list that highlights all of your debts. Make another list that includes every single detail concerning your income. Once that is done, draw a plan wherein you list out all the tentative monthly payments that you wish to settle.
It is crucial that you compare the two lists and examine them closely on completion. This will help bring clarity to the situation. On carefully weighing your debts and incomes, there can be simply two possible outcomes. If your income sources are more than your debts, it will be better that you opt for debt settlement as there is every possibility that you will be able to pay off a negotiated amount to your creditors through a company.
However, filing for bankruptcy may be your only option if on comparison you find out that your debts are far more than your income sources. It will be close to impossible to settle your debts, let alone repay them. Bankruptcy too has 2 sections to it and therefore, based on your present financial condition, a decision will be made which will decide whether you would pay off the debt amount over a given period of years or not pay any debt amount at all.
3.) Comparing the damage done to the credit score:
Both settlement of debts and bankruptcy can cause an immense amount of damage to your credit score; however, bankruptcy has a far more grave effect and you can suffer for over 10 years as your credit report clears out the entire bad name.
Matthew Hayden is a chartered accountant and helps people out of their financial crisis. He has been working on debt settlement cases for over 5 years now. He is also a trained singer and loves attending musicals with his wife.