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6 Ways to Manage Your Debt Like a Pro

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So, you have some debt to pay off. The first step to tackling your outstanding bills is to gather all the information — how much you owe, to whom, and what you’re currently paying.

“Get real, find out how much debt you really owe and what the terms are,” said Sarah L. Carlson, a certified financial planner and founder of Fulcrum Financial Group in Spokane, Wash.

From there, Carlson continued, the game plan is to systematically pay down your balances. She recommends setting up automatic debits from your checking account or rerouting a portion of your paycheck so you don’t have to think about it.

But how do you allot your payments if you have multiple outstanding balances? There are a number of options for tackling debt — read on to find out which one fits your specific needs.

6 strategies for tackling your debt

Regardless of which debt-repayment method you use, you’ll want to make at least the minimum payment on every account. But how you divvy up any additional funds beyond that will depend on the strategy you choose.

StrategyHow It WorksWho It’s Best For
Debt snowballPay down your smallest debt firstThose who need fast and frequent wins to stay motivated
Debt avalanchePay off your debt with the highest interest rate firstThose who have extra income and who are intrinsically motivated
Debt snowflakeMake small payments on all of your outstanding bills as often as you canThose who struggle to budget for payments
Debt consolidation Pay off your debt using a loan or balance transfer cardThose who qualify for reasonable rates and who are paying a lot in interest and fees
Lump-sum paymentsSave up to make a single large payment on your debtThose who have lower interest debt (like a mortgage)
HybridCombine methods based on your individual prioritiesThose whose needs don’t fit neatly into a single strategy

Debt Snowball

With the debt snowball method, you prioritize paying off your debt with the smallest balance first.

This means you’ll make the minimum monthly payment on all of your accounts and then put any extra funds toward your smallest debt. Once that’s paid off, you’ll move on to your next-smallest, and continue on until you eliminate them all.

The debt snowball likely won’t save you any money — since some high-interest debt may be lower on your priority list — but it does help you stay motivated, as you’ll experience small wins more frequently. In fact, according to a study from the Kellogg School of Management, those who use the debt snowball method are more likely to pay off all of their debt than those who opt for an alternate strategy.

Another perk of the debt snowball: You may have more cash on hand as you pay off each debt and eliminate those monthly payments. You can then save for emergencies or reinvest those dollars into paying off your remaining debt more quickly.

Pros

  • You get a quick win to kickstart your commitment
  • It builds discipline for paying off debt
  • You might free up more cash quickly

Cons

  • It may cost you more in interest over time
  • It may take you longer to pay off all your debt
  • You may be tempted to spend the extra cash

Debt Avalanche

The debt avalanche is similar to the debt snowball, but instead of tackling your smallest debt first, you focus on the account with the highest interest rate. This strategy is more likely to save you money over time and might help you become debt-free faster.

If you are motivated by what you’ll save in the long term or have extra income to put toward your bills, the debt avalanche may work best for you.

That said, this method can sometimes be discouraging. Depending on your situation, it could take longer (months or even years) to pay off a single high-interest balance, which means you won’t see much progress at first.

If you decide to go with the debt avalanche but need some motivation to stick with it, figure out exactly how long it will take you to be debt-free. You can use our debt snowball versus debt avalanche calculator to compare how long each strategy would take to complete.

Pros

  • You save on interest
  • You might pay off your total debt more quickly

Cons

  • You don’t get the emotional benefit from quick wins
  • It’s easier to get discouraged

Debt Snowflake

The debt snowflake isn’t quite as methodical as other approaches to debt repayment. With this strategy, you make smaller payments more often — ideally to cover at least the minimum payment on all accounts every month.

This means that you don’t prioritize any one account over another, and you don’t make a lump-sum payment toward each bill once a month. Instead, you pay $2 or $10 or $50 when you can until you cover the minimum due. If you do have additional cash in a given month, you can make a larger payment on a single debt.

If you struggle to budget for monthly payments, the debt snowflake method may help you chip away at your debt at a more manageable pace.

Pros

  • You don’t have to budget for big payments

Cons

  • This method can be difficult to keep track of and stay committed to
  • You may get hit with fees if you pay less than the minimum

Debt consolidation

Debt consolidation involves taking out a new loan or applying for a balance transfer credit card to pay all of your outstanding debt. Instead of chipping away at your debts individually, you’ll make a single monthly payment on your new loan or card.

For this method to be most effective, your new loan or balance transfer card should have a lower interest rate than the combined average of your current accounts, so that you’ll save money over time.



Compare Debt Consolidation loans

Debt consolidation may also be a smart choice if your outstanding debts are racking up finance charges and fees, or if you have too many payments to keep track of. Because you’re dealing with a single creditor rather than a half dozen, you may be able to stay more organized and make on-time payments so you don’t incur fees or take a hit to your credit.

Personal loans, balance transfer credit cards, home equity loans and home equity lines of credit are all options for debt consolidation.

Use our debt consolidation loans page to find and compare loan offers to consolidate your debt.  Keep in mind that you aren’t guaranteed offers or preferred interest rates when you use this page.

Pros

  • You may save on interest and fees
  • You may get a lower — or more predictable — monthly payment
  • You only have to make one payment

Cons

  • Some loans and cards have origination and transfer fees, respectively
  • Balance transfer cards may charge deferred interest
  • You may be in debt longer (if you take out a longer-term loan)

Lump-sum payments

If your primary debt is your mortgage, you may benefit from the emotional boost of lump-sum payments.

As Carlson explains, clients who want to pay off their lower-interest, long-term debts — like their home loans — more quickly can save up a large sum and make a single payment to put a big dent in what they owe.

“Rather than putting aside an extra hundred dollars a month, they save up $10,000 to whack off the debt because that is more satisfying and makes more progress emotionally,” she said.

This strategy likely works best if you are able to set aside more than your monthly payment without compromising the rest of your budget or debt payments. Carlson also cautions that for credit cards and other high-interest debt, you’re better off chipping away at your balances right now.

Pros

  • You’ll get an emotional boost
  • It can help you pay down your debt faster

Cons

  • You’ll need cash to set aside
  • It can cost you money on interest, especially with high-interest debt

Hybrid

If none of these methods are quite right for your situation, you may prefer to combine them or start with one strategy and then adjust as you pay down your debt.

For example, a balance transfer credit card with a 0% APR introductory offer may be the best way to consolidate your high-interest credit card debt — after which, you tackle your remaining bills using the debt snowball method. Or you start by paying off one low-interest debt with a small balance so feel like you’re making progress and then switch to the debt avalanche.

You can also be flexible based on your unique needs. Maybe your financial situation changes. One account may require immediate attention, or perhaps you have a strong emotional attachment to paying off another more quickly.

Pros

  • You can customize your approach

Cons

  • It may overcomplicate your repayment plan

The bottom line

Which debt repayment strategy is right for you will depend on your specific financial situation and your preferences. If seeing regular progress helps you stay committed to the end goal, you’ll likely need a different approach than someone who is motivated by overall savings.

“It really is about behavior and tying emotions to it, I believe,” Carlson said.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Emily Long
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Emily Long is a writer at MagnifyMoney. You can email Emily here

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Using a Personal Loan to Pay Off Taxes

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So you have a big tax bill to pay this April. Maybe you had too little withheld from your paychecks throughout the year or made more money as an independent contractor than you anticipated. Regardless of your circumstances, that outstanding debt can feel overwhelming — especially if you weren’t expecting it. Some borrowers may look into personal loans — generally used to consolidate debt, pay for home repairs or cover other big, planned-for expenses — as a way to pay back the IRS. But before you commit, learn more about whether these loans are the right choice for paying taxes.

Should you take out a personal loan to pay taxes?

The short answer: probably not.

“I can’t think of a time when it would be appropriate to take out a personal loan to pay income taxes,” Adam Funk, a CFP at Savings Coach in Troy, Mich., told MagnifyMoney.

Financial experts agree that, in general, personal loans shouldn’t be the go-to solution for unpaid taxes. One reason? It may cost more to take out a personal loan than to work directly with the IRS via one of their payment, installment or compromise plans. Interest rates for most personal loans range from around 6% to nearly 36% — and you’ll only qualify for the lowest rates if you have excellent credit.

By comparison, interest rates on outstanding taxes are the same for all borrowers and lower than most personal loans. The IRS updates interest rates on a quarterly basis. For underpayments, the rate is equal to the federal short-term rate plus 3 percentage points. As of Jan. 1, 2019, that rate is 6%.

Another benefit of working with the IRS, Funk told MagnifyMoney, is that you have more leverage to negotiate — and even have some or all of your debt forgiven — than you do once you pay off your bill and transfer the balance to a third-party lender.

In addition to interest, unpaid taxes will also incur monthly penalties — even if you have an agreement with the IRS. The IRS does note that paying via debit, credit or third-party loan may be less expensive than accruing these penalties on your outstanding bill, so you may want to explore all your options.

But before you use one of these alternatives, determine how much you’ll owe if you fail to pay off a credit card or loan balance in a timely manner. If your interest rate is high or you can’t tackle the total, you may be better off working directly with the IRS. Of course, simply failing to pay is the most expensive option.

Where to find a personal loan (if you need one)

If you do need to take out a personal loan, check with your bank first. A lender with whom you already have a relationship may be more flexible and open to working with you, especially if you have less-than-stellar credit. A local credit union may also be a good place to start — while you generally have to be a member to access personal loans and other financial products, credit unions often have lower interest rates and less strict qualification requirements for loans than traditional banks.

Online lenders may also have lower rates on personal loans than brick-and-mortar banks. With minimal overhead costs, these lenders are able to pass on savings to customers — though the best rates are reserved for borrowers with better credit.

Regardless of which type of lender you choose, make sure you shop around for the best rate. Start your research with MagnifyMoney’s personal loan marketplace, where you’ll find information about rates, terms, fees and requirements from a variety of lenders. You can also check your rates and offers directly — and see which lenders require a hard pull on your credit upfront.

LendingTree, which owns MagnifyMoney, also has a personal loan tool that may match you with lenders and loan offers. You do have to enter some personal information, including your address, employment status, and estimated income and credit score, before you receive any offers. Keep in mind: There’s no guarantee of offers using this tool.

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A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Can’t afford your taxes? Consider these 4 alternatives

If you’re faced with a huge tax bill that you can’t afford outright, you do have options, including a number of payment plans and agreements you can negotiate directly with the IRS. Your specific tax situation will determine which alternative you qualify for.

1. Pay what you can, even if you request a filing extension

Tax returns and payments are generally due on April 15 (unless April 15 falls on a weekend or observed holiday). You can request a six-month filing extension directly with the IRS, which will push the deadline for your return to mid-October.

However, this extension does not apply to payments. If you don’t pay your estimated tax bill in April, you’ll owe penalties and interest on your balance. The IRS recommends paying what you can by the deadline to minimize these additional charges — from there, you can make a plan to pay the rest.

2. Apply for an installment agreement

If you can pay off your balance in 120 days or less, you can apply for a short-term payment plan. There’s no additional setup fee, but you will be responsible for any interests and penalties that accrue in addition to your outstanding taxes.

The IRS also offers a long-term payment plan, also called an installment agreement, which allows you to pay over 120 days or more. If you allow automatic withdrawals from your checking account, you’ll pay a fee of $31 for an online application or $107 to apply in person, by mail or over the phone. For other methods of payment (debit, credit, check or money order), the setup fees jump to $149 and $225, respectively. Interest and penalties apply.

3. Request an “Offer in Compromise”

If you can’t pay your taxes in full or via an installment agreement, you can apply for an Offer in Compromise. The IRS will look at your financial situation and may agree to settle your debt for less than what you owe. You may be eligible if your tax debt is inaccurate, you have insufficient assets to cover your bill or paying would cause economic hardship.

4. Request a collections delay

If paying any part of your tax bill would prevent you from meeting your basic needs, you can request that the IRS delay collections of your outstanding debt. You will have to provide information about your financial circumstances. Keep in mind: Delaying collections does not exempt you from your meeting your tax obligation, including interest and penalties. These will still accrue until you pay your full bill, and the IRS may still file a tax lien notice, which lets creditors know about your debt.

What happens if you don’t pay your tax bill

If you don’t pay your tax bill by the filing deadline in April — and don’t take any additional action — you’ll likely get hit with interest on your outstanding balance and a monthly fee for late payments. The late payment penalty is generally 0.5% of your unpaid taxes per month and can add up to 25% of what you owe.

There’s also a penalty for not filing your return. For 2016 tax returns, the minimum penalty for filing 60 days or more after the deadline was the lesser of $205 or 100% of the tax owed. According to the IRS, this penalty can be as much as 5% of your unpaid bill each month, up to a maximum of 25%.

If you don’t file or pay, the IRS will levy a combined penalty of up to 5% per month. There are exceptions to late payment penalties, however: If you’ve requested a filing extension and have paid 90% of your outstanding balance, you’ll only owe interest until your bill is paid off. Similarly, the IRS may waive penalties if taxpayers can show reasonable cause for failing to file or pay on time.

The IRS will send you at least two bills for outstanding taxes. If you don’t pay after your final bill, the agency will begin collections actions. The IRS can apply your unpaid balance to future refunds or seize your property — including everything from wages and retirement savings to your home — to cover your tax debt.

The bottom line: File your tax return and pay your balance by the due date. If you can’t afford to pay in full, at least pay what you can and actively explore options to minimize fees and penalties.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Should I Get A Debt Consolidation Loan with Bad Credit?

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Debt can feel overwhelming for anyone, but if you have bad credit, tackling it can seem nearly impossible. Keeping track of what you owe, finding the cash to cover your bills and making payments to a half-dozen creditors as you rack up interest each month may be discouraging, but there are options to help you through. Debt consolidation loans is an option when dealing with bad credit but are they the best choice?

Handling debt with bad credit – consider debt consolidation

If you have a bunch of outstanding bills with different minimum payments, penalties, and due dates, debt consolidation is one way to get organized and perhaps even reduce the interest you pay over time.

A debt consolidation loan may allow you to roll all your monthly bills into one payment. Not only does this simplify your finances, but it may qualify you for a lower interest rate than you have on one or more credit cards, which can save you money as you pay down your debt.

The most recent consumer credit data from the Federal Reserve found that the average credit card interest rate in May 2018 was 14.4%, while interest rates on 24-month personal loans averaged 10.31%.

Consolidation loans — unsecured personal loans are the most common type — are a more viable option than balance transfer cards for those with lower credit scores due to being able to qualify.  To qualify for a balance transfer credit card it’s best to have a credit score in the 700’s or higher.

Debt consolidation loans, on the other hand, can still be had with a bad credit score (580 or below). If you are able to secure a debt consolidation loan for bad credit, you’ll probably be dealing with fairly high interest rates. Before committing to a loan make sure you’ve budgeting so you don’t fall behind on your loan payments.

It’s best to compare loans regardless of your credit score to secure one with the best rates. Companies like LendingTree, the parent company to MagnifyMoney, allows those with a minimum of 500 credit score to compare up to five lenders to find the best option even when dealing with bad credit.

Use our widget below to find and compare the best debt consolidation loans for bad credit!



Compare Debt Consolidation Loans for Bad Credit

Is a debt consolidation loan a good idea for people with bad credit?

For borrowers without solid credit histories, a debt consolidation loan can be an option — but one that they should carefully weigh. Jonathan McAlister, a certified financial planner at Legacy Wealth Management in Memphis, Tennessee, said debt consolidation loans can help those with bad credit reduce their interest rates, pay down bills more quickly and keep better track of monthly obligations.

“However, it could have an unintended downside if the debt came from overspending and now the consolidation loan is being used to free up cash flow to continue an overspending habit,” he said.

Here’s a closer look at the pros and cons of getting a consolidation loan when you have poor credit.

Pros:

  • It’s easy to shop around for debt consolidation loans. Many lenders allow you to pre-apply, telling you if you’re likely to get approved for a loan and what interest rates you could get. This lets you quickly zero in on the best lenders to work with.
  • You can combine different debt accounts into a single installment loan. The loan will have a single monthly payment that will be the same each month, making it easier to budget around it.
  • A debt consolidation loan could give you a chance to lower your interest costs. This is especially true if you’re facing expensive debt such as payday loans or credit card balances, as these types of debt typically have higher rates than what lenders charge on debt consolidation loans.
  • You have a clear path to getting out of debt. You can even choose a shorter loan term to get out of debt faster and pay less interest. Consolidating debt and repaying it responsibly can help you build credit. Using this loan to pay off credit card balances could lower credit utilization ratios. Adding an installment loan could also improve your credit mix, which could boost your score.

Cons:

  • Getting approved for a debt consolidation loan can be tricky when you have bad credit. You might have to spend more time looking for a lender that will work with you or even add a cosigner to qualify for a loan.
  • Your new loan’s payments could be higher than previous minimum payments on credit card balances or other debt. If monthly costs are a concern, a longer loan term could be a wise choice — though it will increase what you pay over the life of the loan.
  • With bad credit, you won’t qualify for the lowest debt consolidation loan rates out there. Some lenders will also charge origination fees to set up a loan, which could add to what you pay. Compare all options to make sure you don’t wind up paying more.
  • A shorter term will get you out of debt faster, but you’ll need to pay more each month to make this happen. Check monthly payment estimates to be sure you can afford to do so. Some consumers might see their credit score temporarily dip after taking out a consolidation loan, McAlister said. You’ll also need to stay on top of your bills and always make on-time payments to avoid damaging your credit.

6 alternatives to debt consolidation loans for bad credit

1. Debt management plans

If you’ve already tried to manage your debt yourself with little success, or if you aren’t sure where to start, a debt management plan may be a good option. In a debt management program, you consolidate your payments through a nonprofit credit counseling agency, which in turn negotiates interest rates and fees with your creditors. Your debt stays with the original lenders, and the agency takes your single monthly payment and distributes it.

Pros:

  • You’ll make one payment each month rather than multiple to several creditors, which can simplify your debt.
  • You get help negotiating interest rates and fees down, so your debt is costing you less.
  • Ideally, you’ll pay your principal down more quickly and save on interest over time thanks to negotiated rates.

Cons:

  • Debt management programs aren’t free — expect to pay an enrollment fee between $25 and $35, plus a monthly cost in that same range. If you don’t have the cash flow to make minimum monthly payments on your outstanding bills plus these fees, debt management likely won’t be a good fit.
  • You can’t use debt management to consolidate secured loans such as an auto loan or a savings-secured loan.

2. Home equity loan

A home equity loan is a type of secured loan in which you receive a lump-sum payment in exchange for putting up your home as collateral, which the lender uses to guarantee that it’ll get its money back if you don’t pay. As a result, lenders are often more willing to work with those who have less-than-excellent credit and to offer lower interest rates than you might get on an unsecured loan.

Here’s what you should know about consolidating debt with a home equity loan.

Pros:

  • You can get approved for a home equity loan even with bad credit. The loan is secured by the home, which lowers the lender’s potential risk and can make it likely to accept applicants with poor credit.
  • Home equity loans traditionally offer lower interest rates than unsecured loans. This can make a home equity loan a more effective way to consolidate debt in a way that lowers your costs.
  • Ideally, you’ll pay your principal down more quickly and save on interest over time thanks to negotiated rates.

Cons:

  • If you don’t own a home, a home equity loan won’t be an option — and if you do, you must have enough equity built up to qualify.
  • The lender can foreclose on your home if you default. If you already have poor credit and struggle to make payments on existing credit lines, a loan that puts your home at risk could add to your debt woes.
  • Home equity loans can have more upfront costs than personal loans, such as application fees, appraisal fees, brokers fees, and closing costs.

3. Home equity line of credit

Like a home equity loan, a home equity line of credit (HELOC) is secured by your property. But instead of a fixed-rate loan you pay back over time, a HELOC is a revolving credit line similar to a credit card — you pay interest at variable rates, but only on what you draw. In general, your “draw period” lasts between five and 10 years.

Pros:

  • You can borrow up to the credit limit on your HELOC, giving you more flexibility in how much and when you borrow.
  • A HELOC has similar qualification requirements as a home equity loan — and similar limitations. It might be easier to get a HELOC with bad credit than, say, a personal loan.
  • You’ll face lower closing costs on a HELOC than you would on a home equity loan. Some HELOCs even have discounted introductory rates that you can take advantage of to pay off debt faster.

Cons:

  • HELOCs often have a minimum draw or an amount you must borrow. If you don’t borrow at least that much you could face a fee.
  • Similar to credit cards, HELOCs have variable rates that can rise if market interest rates go up, meaning you could end up with a higher rate later.
  • If you don’t own a home, don’t have much equity built up or have a limited or difficult credit history, lenders are less likely to take that risk. Not paying off your HELOC balance can also put your home at risk of foreclosure.

4. Cash-out refinance

A cash-out refinance is a third way to leverage the equity in your home in which you apply for a new mortgage that exceeds the amount of your existing loan and receive the additional amount in cash.

Pros:

  • Unlike a home equity loan, a cash-out refinance is a first mortgage, so interest rates may be more favorable and poor credit less of a limitation.
  • A cash-out refinance can also be used to lower your current interest rate or improve the terms of your mortgage, such as switching from an adjustable rate to a fixed rate.

Cons:

  • You’ll need to have equity in your home to benefit from a cash-out refinance. You’ll also need to maintain a loan-to-home-value ratio under 85%.
  • As with a home equity loan, a cash-out refinance can bring in several fees and closing costs. This can add to what you owe or offset savings from a lower interest rate.
  • This option will likely lengthen your mortgage, keeping you in debt longer and increasing the interest you pay on your home.

5. Negotiating a debt settlement

Debt settlement sounds similar to debt management, but they are not equal. For-profit debt settlement companies help you negotiate and settle debt in collections using payment plans or a dedicated savings account.

Alternatively, some creditors may be willing to negotiate with you directly. If you have outstanding medical bills with a hospital or a physician’s office, for example, you may be able to reduce or even eliminate your debt. It doesn’t hurt to call your creditors to ask about your options.

Pros:

  • Successful debt negotiation can help you eliminate debt for much less than you owe.
  • If you can settle a debt, doing so can help you get rid of unaffordable debt and avoid bankruptcy.

Cons:

  • Most debt settlement companies will charge you a fee to negotiate debt on your behalf, but can’t guarantee a beneficial outcome. These can vary widely, so compare different services so you don’t end up overpaying.
  • Watch out for debt relief scams: If a company asks for fees upfront, makes any promises or pushes you to sign up for services, avoid it.

6. Bankruptcy

Bankruptcy is a debt relief option that can help you discharge your debt and start with a clean slate.

Under Chapter 7 bankruptcy, also known as liquidation bankruptcy, a trustee will sell off some of your unprotected assets to partially repay your creditors. The court will then discharge your remaining debt.

Pros:

  • Bankruptcy will discharge many of your debts, providing relief if you’ve accrued more debt than you can realistically repay.
  • Filing for bankruptcy will immediately bar lenders and collection agencies from pursuing payment from you.
  • You can keep certain assets through a bankruptcy, including retirement accounts, your home, and other essential personal property.

Cons:

  • Declaring bankruptcy will significantly lower your credit score and make borrowing difficult. A bankruptcy can be listed on your credit reports for up to 10 years. However, the impact lessens over time and the process can help you move on from your debt more quickly.
  • You’ll lose some of your property, which will be resold to satisfy your outstanding debts.
  • Some debt and financial obligations are very difficult to wipe out in bankruptcy, such as student loans or back taxes.

To qualify for Chapter 7 bankruptcy, you must also undergo a means test. If your income exceeds the threshold, you might be eligible for Chapter 13 bankruptcy. In this scenario, you get to keep your assets but will be required to repay your debt over three to five years.

What option should I use?

Debt consolidation loans are a good option but aren’t the be-all and end-all for those with bad credit. Before you commit to anything, determine what you’re eligible for, weigh all your options and calculate how much each will cost over time. And don’t be afraid to ask for assistance.

“Consumers should always approach debt with a plan to pay it off,” McAlister said. “Seek professional help from a financial planner if you feel in over your head.”

This article contains links to LendingTree, which owns MagnifyMoney.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Emily Long
Emily Long |

Emily Long is a writer at MagnifyMoney. You can email Emily here

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