A Complete Guide to Uncovering Emergency Cash
You’re thinking about several ways to pay off your debts. Is bankruptcy a realistic option to get rid of your debts for good? Think about bankruptcy alternatives like cutting back on spending, reducing expenses, increasing your income and using your tax refund for more than just entertainment.
Cutting Back on Spending
Chapter 7 bankruptcy eliminates unsecured debts like credit cards and loans. Chapter 13 allows you to pay creditors over a three or five years. Before filing bankruptcy, cutting back on expenses may be the best way to get rid of debt.
Cutting back on expenses means to:
• Negotiate with creditors to lower your bills
- Making sacrifices regarding entertainment expenses like movie rentals
- Stop spending money on needless items
- Reduce the amount of insurance coverage or increase the amount of deductibles
- Get the minimum auto insurance required by your state and opt for a high deductible
- Get medical insurance with a lower monthly premium payment or a less expensive plan. Please remember you don’t want a plan so little coverage that it won’t provide coverage if you have a serious illness.
- Get an energy audit to determine where to cut your utilities bills and save money
- Ask for a property reassessment to determine if your property tax bill is too high
- Avoid name brand items. There are plenty of generic brands that are just as good.
- Find transportation alternatives like carpooling, taking public transportation or working from home to cut back on expenses
- Reduce the number of vehicles. You may be spending more to own three or more vehicles when you and your spouse can share one. You may compromise if your spouse is willing to keep their car and be responsible for the maintenance, insurance and any car payments.
- Look for cheaper options to spend time with family such as going to the park
- Consider prepaid cellular phone service instead of a contract service. You typically get the same type of coverage without the overages.
Increasing your income is one of the most obvious ways to wipe out your debt. You’ve properly already considered this option and/or working on it now. You have plenty of quick ways to increase your income like:
• Increase hours worked. This option includes getting a second job, asking for more hours at work or starting a side business.
- Make a lateral work move with more pay. This means doing the same job, but at another company offering more money.
- Requiring everyone in the household to can work to work. Your teenage or young adult children may need to work after school to contribute to the household. They won’t have to work long hours or forever, just help pay on needed expenses while you pay off debts.
Double check investments. You want your investment to give you enough money to decrease your debts.
Word of Caution about Increasing Your Income
Be sensible. Strategies to increase your income could backfire, if you’re not careful. For instance, taking a second job may mean more responsibility on your spouse and/or children. Having your spouse work may involve paying additional money for a babysitter.
You need cash to pay your recurring bills and pay down your debt. Prioritize your expenses, determine how much money you need and which option is best to increase your income.
Find a Way to Make Your Taxes Pay Your Debt
Many individuals use their tax refund for entertainment purposes such as buying a new flat screen television or going on vacation. Tax refunds can also be used for paying down debts and keeping more of the hard-earned money in your wallet.
If you get a refund, file early and electronically. Have your refund direct deposited into your account. Many prepaid debt cards allow you to have your refund direct deposited on the card. Use the refund money to pay off a major bill.
Avoid tax anticipation loans or checks. They come with additional fees and you often get less money.
Tax withholding is way to get more money on your tax return. Ask your employer for an IRS W-4 form. You can also get the form at the IRS website. Complete and return the form to your employer.
Your employer will deduct more taxes than you actually owe. At the end of the tax season you will have overpaid.
Be caution. You can do the same thing to have more money on your pay-check each month. Be sure you use the IRS withholding calculator to assist in determining how much taxes to pay without owing money at the end of the year.
The Things You Should Avoid When You Need to Increase Your Income and Decrease Your Debts
Making the best financial decisions for you and your family aren’t usually made when debts need to be paid yesterday. If you’re desperate, you often think about taking a bad deal now and resolving the issue later. Don’t jump at every chance to get to fast cash.
Here are options to avoid when you need cash fast:
• Consolidation Loans
Consolidating your loans seem like a great option when paying off debts. All debts are combined into one loan. The lender company pays the original lenders.
You pay only the lender. There are major problems. A consolidation loan requires pledging collateral like your vehicle or home. The loan has a ton of interest.
For instance, a secured consolidation loan interest ranges from 7 percent to more than 36 percent. This means you may lose your home or vehicle if you miss a payment. You also may pay more money to the lender than you would paying individual debts.
Pawnshops often offer you about 60 percent of the resale value, but charge a huge amount to get the items back.
• Car title loans
Car title loans require you to pledge your car for a secured loan. The average title loan is about $500, but you pay a lot more to get the title back. Miss a payment, lose your car.
• Payday loans
Payday loans are unsecured loans. You’re not required to pledge money. You need to have the amount you borrowed plus interest and other fees in your bank account on you next pay period. Miss a payment, incur a lot of fees and other penalties.
• Credit union and bank cards with cash advances
Never take a cash advance on bank cards. You are paying additional fees you can’t pay when you have a lot of debt.
You can get out of Debt
Look for ways to get out of debt whether it’s selling items, decreasing spending or making your taxes work for you. It’s also important to avoid taking quick cash options that may lead to bigger debts. Explore all options to avoid filing for Chapter 7 bankruptcy.