If you're buried beneath a pile of debt, you may feel you have to file for bankruptcy. In some case, bankruptcy may be the best option available allowing you to shed your unmanageable debts and make a fresh start with a clean slate.
Depending on the severity of your current financial situation, you may be able to get back in control by utilizing some of the following strategies that in the long run, really can make a difference.
1. Wipe Out Excess Expenses
Start by writing everything down. Go through the list and eliminate all expenses for things you can do without, at least until you get your money under control.
Do you have a mortgage or a vehicle loan?
If so, what is your interest rate?
How much are your monthly payments?
What is the outstanding balance?
List all your necessary monthly expenses like electricity, telephone, insurance, food, etc.
Then eliminate all non essential monthly expenses, including entertainment, eating out, club memberships, subscriptions and any impulse buys you may make in a given month.
Itemize all of your credit card debts, paying particular attention to recurring payments.
Get your last monthly statement from each credit card and write down both the outstanding balance and the interest you're paying on that balance.
Once you've eliminated the excesses, add up the amount you'll save every month. In all likelihood, you'll be pleasantly surprised by the amount of money you can salvage every month by just exercising stronger control. Seeing it in black and white packs a powerful punch.
2. Make A Cash Diet Plan
If you have a family, they will obviously be impacted, so get them involved. When you work together, you'll reduce your debt much faster than if you attempted to do it alone.
Don't dwell on the negative but focus on the incentive to creatively find other ways for everyone to get what they want at a reasonable cost to the whole family.
For example, you may re-discover cooking. It takes no more time to cook a great meal than to go to a restaurant and wait to be served, eat and drive back home. The savings (not even counting alcohol) can easily be more than $200 a month. You can instantly apply the money you save to pay down your credit card debt. Remember to pay off your highest interest card first if you own more than one card.
3. Start A Part-time Job
Consider a second part-time or seasonal job. Anything from wrapping gifts at the local mall to lawn and garden help for the summer. Whatever extra money you can bring in might just be the difference between filing and warding off bankruptcy. There are adverse consequences to bankruptcy that can and will affect you financially for up to 10 years, not to mention the emotional toll this often takes on everyone.
4. Cash In Your Equity
If you have equity in your home, you can refinance to lower your monthly payments. Or, you can use the home equity to get a low interest loan to pay off debts. Talk to someone you trust to see if this is an option for you.
Don't forget about other assets you can turn into cash. Think about any antiques or collectibles you own. Perhaps this is the time you seriously consider selling those assets and using the cash to pay down your debts.
Make a list of everything you own that you can quickly and easily sell. Check your closets and your garage. You'll likely find some items of value that you can live without.
Have a garage sale to turn those items into cash. You may even be able to sell some of them on eBay or through local consignment stores. Its a new world, someones trash may often be someones treasure. Make it work for you.
5. Consolidate All Your Debts
Debt consolidation is probably one of the easiest alternatives to bankruptcy. This involves getting a loan at a low interest rate and then using it to pay off all your high interest loans and credit card debt. Most debt consolidation lenders have arrangements with credit card companies and debt collection agencies so they're able to process your loan and get your debts paid quickly.
The end result is that you have one low interest payment each month instead of many different payments. And, because your interest is lower, more of your monthly payment is actually going toward reducing your debt than if you continued making payments directly to the original creditors. Again, talk with someone you trust to be sure you are getting the best advise for your situation.
6. Hire A Debt Negotiator
If your current debt load is simply too large to qualify for a debt consolidation loan, you can consider debt negotiation. A professional debt negotiator will negotiate with your creditors to reduce your debt. After the negotiations are complete, you'll still pay a monthly payment to your creditors but your overall debt to each creditor will be reduced.
Creditors are generally willing to negotiate the total amount of your debt as they are keenly aware of the risks involved if you are forced to file for bankruptcy. Once they know there is involvement with a debt negotiator, they will quickly see that bankruptcy is a real possibility.
You can certainly negotiate with your creditors yourself however you will undoubtedly have more success if you hire someone with more experience in the process.
7. Get Consumer Counseling
There are many non-profit consumer credit counseling agencies whose sole purpose is to help consumers get out of debt and stay out of debt. They can help you better understand your financial situation, teach you how to draft a budget and a help you with a workable debt management plan for long term success.
Your credit score will no doubt drop couple of points after you sign up, but it won't be nearly as severe as filing for bankruptcy. Some states now require this step be taken prior to filing for bankruptcy itself.
The old adage "an ounce of prevention is better than a pound of cure" applies to personal financial health just as well as it does to your physical health. It's become far too easy to overspend. With proper financial planning, and a dedication to living within your means you can be prepared for the unexpected and it will not cause a total upheaval in your financial life for years to come.