In part 1 and part 2 of this article, we discussed a number of ways for paying off debt fast. These included paying as much as you can each month, consolidating your credit card debt, using savings and investments to pay off debt, borrowing against your life insurance policy, asking friends and family for a loan, getting a home equity loan, and borrowing from your 401(k) retirement plan. There are a couple of other options you can explore to pay off your debt fast. Of course, not all of the above options or the ones below will be a good fit to anyone's specific debt situation, but some of them may be valid debt reduction options for you.
Paying off debt fast : renegotiating the terms of your loan with the creditors
This might be a last ditch effort to pay down your debt if you have exhausted most other options, other than declaring bankruptcy. You might be able to use the threat of bankruptcy to renegotiate the terms of your loan with your creditors. If you can convince your creditors that the only way for you to avoid bankruptcy is to get more favorable terms to pay off your debt, you might be able to convince them. After all, your creditors would like to be paid, which will not happen if you can declare bankruptcy. Favorable loan terms may include a new lower repayment schedule, and / or lower interest rates. You might be surprised at how flexible your creditors might be when faced with the threat of your bankruptcy. It certainly does not hurt to try. If you cannot do this on your own, there are organizations that can help you renegotiate the terms of your loan.
Paying off debt fast : Filing bankruptcy
Filing bankruptcy is definitely a last resort if none of the options mentioned till this point work for you. This is only to be undertaken if repaying your loan becomes absolutely impossible. However, you should be aware of the significant repercussions that accompany declaring bankruptcy. The record of your bankruptcy will stay on your credit record for 10 years, so you will have a hard time obtaining affordable credit during that decade. The bankruptcy filing process itself can be quite expensive. Attorney and court fees for filing bankruptcy can run into the hundreds of dollars, and you must pay them in order to successfully file for bankruptcy. Also, as bankruptcy regulations have been tightened in recent years, it is much harder to get complete debt relief through declaring bankruptcy. There are two types of bankruptcy you can file: Chapter 7 and Chapter 13.
Chapter 7 eliminates most of your debt obligations except for a few like child support, alimony, taxes, student loans and some other specific debts. Although Chapter 7 relieves you of most debt obligations, you may lose most of your property which is used to pay down debt. Certain types of property may be exempt, depending on the state you live in. This can include some of your home equity, a vehicle, some personal property including jewelry, and business tools and equipment. While all these may not amount to much, they do mean you are left with at least something.
Under Chapter 13 bankruptcy, you get to hold on to your property, but the bankruptcy court controls your finances. You agree to a court-approved payment plan that allows you to pay off your debt partly or in full over three to five years. You get a reprieve from your creditors during this time, and do not incur any further interest on your loans.
While declaring bankruptcy can be a way to get out of debt, you should definitely consider all other options before settling on this one.