Credit card debt is a very actual problem today. According to financial experts, about 40% of US families spend more money than they earn. A bankruptcy can be a very tempting proposition to eliminate your nerve-racking debt and get back on their feet. However, this solution can have a devastating effect on your FICO score. That's why it is better to look for other financial alternatives before going through Chapter 13 or Chapter 7 bankruptcy. Read about the main ways to avoid bankruptcy in our article and give your financial situation a little more thought.

Declaring bankruptcy is a very serious matter. Keep in mind that this step can knock your credit score down into the lowest rankings. The information about bankruptcy will stay on your credit report for up to 10 years. Potential lenders will consider you as a high risk. It can limit your chances to qualify for low rate credit cards or loans, rent an apartment and even get a job. Moreover, bankruptcy is a time-consuming and emotionally draining process that involves several court appearances.

That's why if you are considering bankruptcy you should carefully consider all of your options to make a well-considered decision. You can work out a repayment plan, negotiate your situation with creditors or get help from nonprofit credit counselors. If any of these solutions can save your credit score, it's better to choose it, even if it takes more time and money to eliminate your debts.

Find New Sources of Income

One of the first things to do is to cut down your expenses as much as possible. Right now, it may seem that you don't have funds to repay your debt, but if you take a closer look at your budget, you may find that you can free some cash. The basic concept is to analyze your expenses and work out your spending priorities. For example, you can quit most subscription services like cable channels or fashion magazines.

If there is no way to reduce your spending, can you increase your income? Perhaps you can get a second income if you analyze your skills. Nearly everyone can try their luck earning money by offering private tuition from cookery to foreign languages. Or you could live in someone else's home and look after their pets while they are on holiday.

Talk to Your Lenders

Any creditors would prefer to get some money from debtors than no money at all. So tell your credit company and other lenders about your financial difficulties. Express your intention to eliminate the debt and ask if they can lower your monthly payment or interest rate (or both). Many issuers have special hardship programs designed for such situations. You will never know about them if you don't ask.

Credit Counseling Services

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires credit counseling before you declare bankruptcy. Though you may be absolutely sure that bankruptcy is the only solution for your situation, it is in your interest to get assistance of credit counselors. They have experience working with lenders, so they know the right things to say to get your payment and interest rate reduced. Credit counselors will also help you work out an appropriate debt management plan. It can be a good start to your debt-free future!

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