No one wants to have to file for bankruptcy to manage their debt problems. However, many people assume it is their only option. Some are unaware of potential alternatives that, while they may take more time and effort, are just as effective. So before filing for bankruptcy, give some of these options a try first.

Debt Consolidation Loan

Many companies will offer consolidations loans that allow debtors to combine their numerous bills into one manageable payment. The same amount of debt is owed, but monthly payments and interest rates are generally lower.

Low Interest Credit Cards

Most credit card companies will offer low interest transfer rates to new customers as a way to encourage application. Opening such a card and transferring a balance will allow the debtor to pay less in interest over the life of the debt.

Home Equity Line

If the debtor has equity in their home, it can be used as a way to consolidate debt into a loan with low interest that could be tax deductible. Be cautious with this strategy, though. Should the debtor default, the lender may be able to repossess the property.

Work Out a Repayment Plan

It never hurts to ask creditors if they are willing to agree to a repayment plan with reduced interest or debt. Many companies will agree when bankruptcy is the only other option, as a repayment plan is the better alternative for their interests.

Create a Debt Management Plan

If creditors will not negotiate, credit counseling agencies can help debtors come up with a debt management plan. These plans consolidate all debts into one monthly payment that goes to the agency, which is then disbursed among creditors until the debt is repaid. Be aware, however, that missing a payment may result in termination of the plan with no protection from creditors.

Default

If all else fails and the debtor has nothing of value, it may be best to simply stop paying creditors. While collection attempts can be made, the law protects the debtor from abusive behavior. Creditors may take the debtor to court, but if he or she has no assets, there is no legal ground on which they can collect the debt. At that point, it is likely the collector will write off the debt and take the loss. This option might stay on the debtor’s record for up to seven years.