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Declaring Bankruptcy: Know the Alternatives

Americans are carrying more in debt now than they ever have before. Because of this trend, bankruptcies are on the rise. According to, between September 30, 2004 and September 30, 2005, 1,782,643 bankruptcies were filed. In the previous fiscal year, 1,618,987 bankruptcy cases were filed. More bankruptcies were filed in the third fiscal quarter of 2005, 542,002 more, in fact, than in any quarter before it.

Consolidating all your outstanding debt into one loan might be your answer

When a family can barely make the minimum payments on their credit cards or is living from paycheck to paycheck, an unexpected financial challenge can quickly bring them to their knees. Unemployment, illness, divorce and other unexpected economic setbacks can drive even the most financially sound budget over the edge.

At such times bankruptcy is often considered and can sometimes be the right choice. There are other options, though, that should be considered as a bankruptcy can haunt a family far into the future.

Option 1: Consolidation

Consolidating all your outstanding debt into one loan might be your answer. Some credit card companies will allow you to transfer outstanding balances from other cards to their card and will offer a low interest rate (or none at all) for the first few months. If your credit is good and your debt is mostly in the form of charge cards, this may work for you. Be aware, though, that when the promotion is over, some interest rates will jump as high as 24 percent. Also, if you make this a habit, continuing to open new accounts and transfer the balances, your overall credit score will be lowered.

You could also apply for a home equity loan or refinance your existing mortgage. Mortgage rates, in comparison to the rates of other types of loans, are relatively low, and some lenders will allow you to borrow up to 100 percent of the value of your property. Keep in mind, though, that if your financial problems continue, you could be placing your home at risk. To explore this option further, go to our home loan center for a free quote.

Option 2: Credit Counseling Companies

Consumer Credit Counseling Service, or CCCS, is a nonprofit debt counseling service that assists consumers who are over their heads in debt. CCCS is funded and controlled by the credit grantors and credit bureaus. Often, the services provided by CCCS can benefit the consumer. However, if you decide to leave CCCS before you have finished their program, they can note your failure to complete the process as a questionable listing on your credit report. Also, when you participate in the CCCS program, your creditors will sometimes (though rarely) note it on your credit report. Participation in a debt counseling program is considered a huge red flag by prospective credit grantors. Remember, paying off your debt is a step in the right direction, but it does not restore your credit.

You may be a good candidate for credit counseling if you're unable to pay the minimum on your credit cards, you're consistently late paying one or more of your regular bills, creditors and collection agencies are hounding you, or your efforts to work out reasonable repayment plans with your creditors have failed. Before signing up for a credit counseling program, be sure to investigate various companies. In your search, keep an eye out for the following:

Big upfront fees. Credit counseling companies usually charge a fee of about ten dollars a month. If they ask for much more, you should be concerned.

Non-accredited companies. Credit counseling services should be affiliated with either the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

Untimely payments. Some agencies will pocket the first month's payment as their fee. Find out when and how much the agency will pay your creditors each month and monitor those payments. After all, it's your credit that's at stake here.

Too good to be true. Legitimate credit counselors will not be able to make debts disappear, nor can they promise that using their services won't affect your credit report. They can help you lower your interest and pay off your debts, but it still may affect your credit history. As is normally the case, if you feel that what's being offered is "too good to be true," you're mostly right and the offer is probably unrealistic. We recommend for easy online debt relief.

Option 3: Personal Credit Negotiations

By tackling creditors yourself, you can often negotiate better terms for your loans, such as reduced interest rates, lower monthly payments, waived late fees or extended payment times. Simply call your creditors, explain your situation and ask them what they can do for you.

Being assertive and proactive at the first signs of economic trouble can help you avoid financial insolvency. The sooner your credit is under control, the sooner you can get your life back to normal.

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