4 alternatives to consider before filing for bankruptcy

If you're overwhelmed by debt, bankruptcy can seem like the only way out. But that relief comes with lasting consequences. It's a major legal step that can remain on your credit report for up to seven years with Chapter 13, or up to 10 years with Chapter 7.

Before you decide to file, it's worth exploring other paths. Here are four alternatives to consider.

Negotiating your debt is actually more doable than most people realize, and it's free. If you're behind on payments or think you might fall behind soon, calling your creditors directly to explain your situation can open the door to hardship programs, temporary forbearance, reduced interest rates or waived fees. Credit card issuers, medical providers and utility companies often have assistance programs that aren't widely advertised.

When you call, be sure to ask to speak with the hardship or customer assistance department specifically and be upfront about your situation, whether it's a job loss, medical emergency or another financial setback. Also, come prepared with a sense of what you can realistically afford to pay. Creditors are often more willing to work with you if you reach out before you've missed payments rather than after. If you don't get a helpful response the first time, it's worth calling back and speaking with someone else.

If the idea of negotiating yourself feels overwhelming, there are bill negotiation services that can handle it for you, though they do take a cut of whatever they save you. Rocket Money prides itself on its bill negotiation feature, which is available to both free and paid users. The company will negotiate lower rates with phone companies, cable providers, internet services, etc., and you only pay if the negotiation is successful (between 35% and 60% of the first year's savings).

Who is this good for? Negotiating is a good choice if you're in early financial distress and have a relatively manageable amount of debt. When you're still in communication with your creditors and just need some breathing room, this is a low-risk first step.

Debt consolidation means combining multiple debts, such as credit cards, medical bills and personal loans into single new loans, and ideally at a lower interest rate. Instead of juggling several minimum credit card payments, for instance, you make one monthly payment to one lender. This process won't reduce what you owe, but it can simplify repayment and potentially save you money on interest with a lower, fixed rate.

Achieve is a great lender for debt consolidation because it offers two- to five-year loan repayment plans. You can also earn a rate discount if at least 85% of your loan funds go directly to your creditors, and additional reductions are available if you have a qualified co-borrower or sufficient retirement funds.

Dealing with a large debt load? Upgrade allows you to borrow up to $50,000 with no prepayment penalties and funding as soon as the next business day.

Who is this good for? Debt consolidation is a good option for those with a decent credit score who can qualify at a lower rate than what they're currently paying. If your credit has already taken a significant hit, however, you may have trouble qualifying for favorable terms that make it worth it.

Debt settlement is about paying less than what you actually owe. Rather than reorganizing your debt like consolidation does, you or a debt settlement company go back and forth with creditors until they agree to accept a lump-sum payment for less than the full balance and call it even. It's not a quick or guaranteed process, however. Your credit score will likely take a hit as not every creditor will play ball, and the IRS may consider any forgiven debt as taxable income. But for people who are already behind, it can mean paying significantly less than what they originally owed.

If you're considering a debt settlement company, National Debt Relief works with clients who have as little as $7,500 in unsecured debt and charges fees of 15% to 25%. The company says clients who complete its program reduce their enrolled debt by an average of 20% to 25% after fees.

For those with tax debt, CuraDebt is one of the few settlement companies that works directly with the IRS and state revenue offices. It requires a minimum of $10,000 in debt and charges the same fee range as above.

Who is this good for? Debt settlement is best for those with a large amount of unsecured debt who have fallen behind on payments and have some cash available for a lump-sum offer. This tends to be a better fit for people who have already seen credit score damage and are weighing options before resorting to bankruptcy.

Nonprofit credit counseling agencies like the Financial Counseling Association of America (FCAA) and the National Foundation for Credit Counseling (NFCC) can help you take stock of your finances and map out a realistic path forward. Both of these services offer free consultations with nonprofit credit counselors who can walk you through your options without any pressure to commit.

The counselor will review your income, expenses and debts, then help you build a budget and walk you through your options. Many agencies also offer debt management plans (DMPs), where they negotiate lower interest rates with your creditors on your behalf and you make one consolidated monthly payment to the agency.

Who is this good for? People who want structured, professional guidance and have steady income to make consistent payments over time can benefit from speaking with a credit counselor. A DMP typically takes three to five years to complete, so this works best for people who need a manageable long-term plan rather than an immediate fix.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every debt relief article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of debt relief products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and X to stay up to date.