Bankruptcy filings are climbing and are expected to total 1.5 million before the end of the year. If the economic crisis has you considering bankruptcy as well, there are several things you can do now to manage your debt and avoid being forced into filing bankruptcy like so many others. Adopt a barebones budget. If you haven't done so already, you need to trim all of the fat from your budget. This includes, but is not limited to, cable TV, satellite services, cell phone or landline accounts, cigarettes, morning coffees, hobbies that cost money, and expensive nights out. If you don’t need it to survive, you don’t need it right now.
Sell assets. It can be painful to part with your prized possessions, but it is one of the quickest ways to raise money when you are in deep financial trouble. If you have a major asset, such as a house or car, that isn't secured by a loan, it has to go. Small assets can also be sold via eBay, classifieds, and other marketplaces. Take all of the money you make and apply it toward your debt.
Ask about hardship programs. Credit card companies, banks, and other creditors often have hardship programs for people who are having difficulty paying their bills. These programs offer lower interest rates, payment deferments, or reduced payments. Your creditors may or may not offer such a program, but you will never know unless you ask.
Work with your creditors. If you work closely with your creditors, you may be able to negotiate a non-bankruptcy workout agreement. This agreement will accomplish the same thing as a Chapter 13 filing, but you won't have to file bankruptcy and destroy your credit in the process.
Refinance. If you have student loans, car loans, or a mortgage loan, you may want to consider refinancing. A refinance may not cost you anything (unless it is a mortgage loan) and could significantly lower your payments if you are currently paying a high interest rate.
Request write-offs. This doesn't always work, but it is worth exploring. If you have old debts, you can contact the creditor or collection agency that holds the debt and ask if they can provide written proof that the debt exists. If they cannot, you can ask to have the debt written off entirely.
Settle your debts. Settling debt isn’t always the best financial avenue. However, it is definitely worth considering if you are on the verge of bankruptcy. If you have old debts (debts that have been sent to a collection agency or charged off), you should contact the company that holds it and ask to settle for a lesser amount. If you have a lump sum of money to give them, they may be willing to write off as much as 50 to 60 percent of your debt.
Seek help from a government agency. If you are in a really tight spot, you can contact local, federal, or state agencies for help. These agencies will be unable to assist you with certain types of debt, such as credit card debt, but they can help with the basics, such as rent, heat, electricity, or food bills.
Get credit counseling. The new bankruptcy law requires individuals to get credit counseling before filing bankruptcy. If you are thinking about filing bankruptcy, you should go ahead with the counseling. It may help you get lower payments, lower interest rates, and a better handle on your debt so that you can avoid filing altogether.
Increase your income. Although it can be difficult in a downtrodden economy, you should make every effort to increase your income so that you can pay down your debt naturally. This may mean asking for more hours at work, taking a second job, or finding ways to make extra money online.
*About the author: This is a guest post from education writer Karen Schweitzer. Karen is the About.com Guide to Business School. She also writes about online school for OnlineSchool.net.
*Image Credit: Photograph by phxpma [via Flickr Creative Commons]
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