There are a large number of so-called debt settlement agencies advertising services that boast that they can help you avoid a Chapter 13 bankruptcy in Colorado Springs.
If you have overdue medical bills, late car payments and credit cards with sky-high interest, you know you have to take some form of action. And it can be tempting to want to avoid any negative marks on your credit.
But Colorado Springs bankruptcy lawyers know that first of all, a lot of these companies pose a buyer beware situation. A lot of them charge high rates for actions you may be able to take yourself, and some have even been pursued criminally for fraud.
A Chapter 13 bankruptcy, on the other hand, is a federally-approved process that is overseen according to strict legal standards, and when it's all done, you are free from debt.
The other thing about a Chapter 13, versus a Chapter 7, is that lenders and other institutions tend to look upon it less harshly because you are actually paying off a good portion of what you owe. Additionally, you have the protection of legally blocking your creditors from harassing you or coming after you for more once the process is done.
Now, if you decide to go with a debt settlement or credit management company, as mentioned before there is always the possibility of fraud. But also, you're generally going to be looking at higher monthly payments than what could be arranged in a Chapter 13 plan. Plus, in a Chapter 13, you're paying back a portion of the debt, rather than all of it, which is what you'll do with a debt management plan.
With a debt management plan, you're also looking at likely paying on those debts for a longer period of time. Plus, your creditors might not all agree to the terms of the plan (whereas in a bankruptcy, they would be legally compelled to do so). This is probably going to mean you'll be paying higher fees and balances for those agencies.
And also, it's not clear that there's really even much benefit to your credit score, as debt management plans are also reported to credit reporting agencies.
As we close in on the holiday season, it's easy to get in over your head with credit card spending. According to Yahoo! Finance ("Top 5 Reasons Why People Go Bankrupt"), poor use of credit is the third most likely cause of bankruptcy.
When credit comes easy, some people just cannot control their spending. Before they know it, credit card bills, installment loans, car payments and "same as cash" plans become a burden too heavy to carry. If the borrower is unable to make minimum monthly payments on this debt, or secure a debt consolidation loan, bankruptcy becomes the inevitable alternative.
Statistics show that even when some borrowers consolidate credit card debt, this only delays the inevitable bankruptcy filing. While a home equity loan might be worth considering, it's never smart to overuse this option. If this payment becomes unmanageable as well, borrowers may find themselves facing foreclosure.
The lure of overindulgence
Just like we eat too much between Thanksgiving and New Year's Day, Americans also tend to spend too much. It's no surprise that every January 1st we all "resolve" to put an end to these vices, but it's much easier to eat healthier than it is to break our spending habits. Even the most financially savvy adults tend to rack up large credit card bills during the holiday season.
A little self-discipline
Although it's tempting to spend more than you can afford, a disciplined approach can help you maintain financial sanity.
Why limit holiday credit card purchases? Simply put, credit cards give the illusion that you can buy more. Even if you shop for bargains, gifts bought on credit cards end up costing more money. By the time you add in the months of finance charges, you will ultimately pay a lot more for these gifts than if you had paid cash. High credit card balances affect your credit score too, especially if you are spending more than 30 percent of your credit limit.
8 Tips for Avoiding Holiday Debt
Stick to these spending principles and you will keep your holiday spending to a minimum. Here's how to put them into practice.
These tips can prevent you from falling victim to credit card debt, one of the leading causes of bankruptcy. For more information on personal debt managment and bankruptcy, consult with a Colorado Springs bankruptcy lawyer.