Should I File Bankruptcy? How can I Avoid Bankruptcy? How does Bankruptcy affect Your Life? What is Debt Consolidation? What is Credit Counseling?

How Can I Avoid Bankruptcy?

If you find yourself in such dire financial straits that you are considering bankruptcy, it is important to know that bankruptcy is not your only option. Before you pursue bankruptcy as an option, it is important to consider ways that you can avoid bankruptcy.

To avoid bankruptcy, the first thing that you should do is create a detailed list of how you spend your money. From this list, determine how much money you are spending on your wants and how much money you are spending on your needs. You may be surprised to find how much money you spend on things you don’t really need. Once you distinguish your wants from your needs, decrease the amount of money you spend on your wants. The money you save can go toward paying off your debt.

Once you figure out how much money you have left after paying for essential living expenses (i.e., mortgage, food, gas, etc.) set aside that left-over money to pay off your debt. One method for doing this is to order all of your debt according to the highest amount owed. Once you have your bills in order, pay the minimum balance on each one except the bill that you have placed on top. Toward the top bill that you have chosen, you should pay as much as you can afford to pay each month until it is paid off. Once that bill is paid off, use the money that you were putting toward that bill each month toward the next bill on your list. Continue this process until your debt is all paid off.

Paying off debt in this way requires a tremendous amount of self-discipline and time. Your bills will not go away immediately like they will in a bankruptcy, but you will pay back your creditors everything you owe them and your credit report may look better for that.

To help you stick to your plan to pay off one bill at a time, it is important that you stick to a strict spending plan. One way to do this is to dedicate your self to credit free living. You can do this by setting aside cash from your paycheck each week to pay for the essentials in your life. In fact, you can even itemize how you’re going to spend your money and set a certain amount aside for food, gas, household supplies, and miscellaneous living expenses. You can keep track of your money by placing it in envelopes dedicated to each necessity. Once the money is gone, you may not spend any more. This can become a game to see how well you do with the money that you have available.

Before you try to implement this plan, you may want to see if you can lower your debt. There are a couple ways that you can lower your debt without filing for bankruptcy or seeking credit counseling services (which may also negatively impact your credit report; see FAQs About Bankruptcy—Does going through credit counseling affect my credit?). One thing you can do is call your credit card companies and ask them to lower your interest rate. While your credit card company may choose to not lower your interest rate, it never hurts to ask.

Another thing you can do is transfer balances to 0% pre-approved credit card offers that you receive. Keep in mind that these 0% interest offers generally only apply to balances that you transfer from other credit cards and if you use the card to incur more debt, you will generally be paying toward your 0% balance and being charged interest for your additional charges. Also, these offers are usually only for a certain period of time, after which you will be charged interest for any outstanding balance on your account. This may still not be a bad idea; even if you cannot pay off the balance in the allotted time, at least you will have a small reprieve from interest accumulation. Be sure to read the fine print on these agreements and do not hesitate to call the credit card company to have them explain the details of their offer.

Another way you can reduce debt is to pay your credit card bi-monthly instead of monthly. As long as the total of both payments adds up to at least the minimum amount due on the account, you will be saving money interest. Credit card interest accrues daily. Therefore, if you make payments more frequently, there will be a smaller balance to charge interest.

None of these methods are a guarantee that you will not need to file for bankruptcy. Getting out of debt demands a dedication to living within your means and a tremendous amount of self-discipline. If you find that you are really struggling with your debt management, contact a bankruptcy attorney. He or she may be able to further advise you on steps you can take to avoid bankruptcy.