If you are suffering from financial hardships, you will either run away from your creditors or you will make a secret deal with them. At both camps, there are two possible solutions to getting out of debt. One of these options you can consider is bankruptcy.

The rule is simple. If you can pay your debts in full, you should go ahead and avoid bankruptcy. You’ll be able to rebuild your credit, and you can stand back on your feet. However, if you cannot pay your financial obligations, there are a few things that you should do and avoid. Here are two options that you should avoid if possible.

Ignoring creditors

This is the worst thing you can do. There will come a time where creditors are calling you or sending you notices in the mail. If this happens, they’ll know that you can’t pay in full, and they will know all about your finances. What does this do to your credit score? It takes it down. Getting new credit will be difficult. Some of those creditors may close your account right away.

On that same note, ignoring your credit card debt or even ignoring the phone calls will not improve your situation. This only makes it worse because the collectors will come knocking on your door or have you defend yourself at court. If you can’t pay in full, setting up a payment plan with your creditor may help you avoid legal trouble. And, remember, that legal trouble could be a garnish of wages.

Consolidation

If possible, debt consolidation is a sound financial solution. When you owe money to different creditors, you might have trouble keeping up with the payments. That’s because paying off your credit cards is more difficult when you owe money to several creditors at once. If you couldn’t pay your bills in the first place, trying to meet a payment schedule with consolidation may help you avoid trouble.

What is debt consolidation, and how does it work? When you are working with a debt consolidation company, you are assigned a counselor who works with your creditors for you to get lower monthly payments. Your payments may even be reduced. The disadvantage to this option is that your credit score may take a hit because you are taking out a new loan to make payments on an old loan. However, it will buy you more time to pay off your debt, and it may help you with your finances in other ways.

Settling

If you can’t pay your bills in full, or at least on time, another alternative is to settle your debts. Debt consolidation and settlements are the same things, and they are often confused with each other. A settled debt doesn’t reduce your total debt. Instead, it reduces the amount you can pay off as you pay off your creditors.

A settled account doesn’t look bad on your credit report, so it may be easier for you to get new credit. However, you will be likely rejected if you try to get new credit while you are settling your debts. In other words, settling your financial obligations will lower your credit score, but it won’t be as bad as a foreclosure or bankruptcy, which can take quite a while to improve your credit score. That being said, if debt consolidation doesn’t work, or if you would prefer to get out of debt without filing bankruptcy, you will have a few options.

You can settle directly with your creditors. If this is possible, and if you can pay off the amount owed in one lump sum, you should do so. In situations like this, it is possible to pay your creditors less than is owed. However, you will probably need to have years of unsecured debt before you can qualify for a settlement.

Consumers with significant amounts of money owed to several creditors should consider consulting a professional settlement company. These companies can help you eliminate most of your debt, and they can also help you pay off your debt for a fraction of the amount owed.

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