How to Avoid Bankruptcy and Pay Off Debt

Bankruptcy may seem like a logical solution when juggling excess debts, especially if you do not have the money to keep up with payments. However, a bankruptcy notation stays on your credit file for ten years and, after a filing, your credit score will plummet. Bankruptcy gives you a fresh start, but if possible, take steps to see if you can pay off the debt yourself and protect your credit.

Instructions

1

Stop hiding from your debt. Learn the extent of your debt problem by grabbing your monthly statements, a calculator and adding the sum total of all your debts.

2

Look at your monthly income. Create a list of monthly expenses such as housing, gas, food, utilities and other recurring monthly payments. Subtract this number from your monthly income. This figure is your extra or disposable income.

3

Take your debt amount and divide this number by your amount of extra income each month. This figure reveals the number of months it'll take to pay off debt if you use all of your extra income to pay down balances. For example, $5000 (debt balance) divided by $300 (extra income) equals 16.6. Therefore, it'll take about 16 to 17 months to pay off a $5000 debt with $300 payments every month.

4

Get lower rates on credit cards. Telephone credit card companies and ask them to reduce your existing interest rate. You pay less interest with a lower interest rate and, once you begin making higher payments, the bulk of your payments go to reducing the principal.

5

Bring in additional income. Getting out of debt and avoiding bankruptcy will involve sacrifices. If you don't have extra income, sacrifice your free time and look for part-time employment after work. Earn an extra $125 a week and you'll create an additional $500 a month.

6

Downsize to avoid bankruptcy. Move into a cheaper apartment. Sell or rent out your home and find a less expensive one. Get rid of your expensive car payment and purchase a cheaper, used car. Stop shopping sprees, dining out and lavish vacations. Use the money saved to get rid of your debts.

7

Use debt management. Get help from a nonprofit debt management firm to avoid bankruptcy and ultimately get rid of your debts. These firms help you get a better rate on credit cards and loans. Plus, they place a freeze or hold on your credit cards to prevent new charges.