Developing strategies to manage your debt can be essential to avoiding bankruptcy. Avoiding bankruptcy is important because a bankruptcy filing can cause serious, long-term problems for your credit. In addition, you can easily end up in the same situation again if you don't learn how to manage your financial problems and debt issues. Fortunately, you can take steps to manage your debt and to shop wisely for consolidation loans to avoid exacerbating your problems.
Step 1
Assess your spending habits and expenses. It is essential that you know how you spend money so you can find ways to cut expenses, and create a realistic budget. Research your sources of income, and your bank and credit card statements to get an idea how much you spend every month compared with your total income. Look for places you can reduce spending, such as on eating out or unnecessary shopping trips. Figure out how much you can reliably spend toward paying down your debt every month.
Step 2
Consider unsecured loans to deal with serious debts. Credit cards are a common type of unsecured loan. Bankrate.com suggests you look for credit cards with low introductory interest rates to ensure that you aren't repaying your debts at higher interest rates. Check credit card contracts carefully for hidden fees on balance transfers. Keep track of when introductory interest rates change to higher rates on your credit cards. Make sure your balance will be paid off before the rate change takes effect.
Step 3
Look into debt consolidation loans to assess whether this type of loan is a practical move for you. If a debt consolidation loan fails to lower the overall interest rates on your debt, it is probably not a very good deal. Talk to a reputable credit counselor to help you choose the best debt consolidation plan for your particular needs. Bankrate.com suggests applying for loans through your banking institution or credit union to find the best interest rates on consolidation loans.
Step 4
Contact your creditors to attempt to negotiate settlements before taking out any loans. Explain your financial situation and request a reduced balance in exchange for paying off the debt more quickly. Use the possibility of bankruptcy as a negotiating tool. Some creditors will opt for a settlement to avoid losing the entire balance due to a bankruptcy, says Bankrate.com. Request lower monthly payments, and reduced fees and interest rates with creditors unwilling to offer a settlement on your debt.
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