How to Avoid Bankruptcy

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Think filing for bankruptcy is the easy way out? Plan to say goodbye to your cell phone, the internet, and anything else the IRS deems a luxury—and suffer a black mark on your credit report for ten years. Get smart and get out of debt the old-fashioned wa

Step 1: Use cash
Stop using your credit cards and start paying cash for everything.

Step 2: Examine your habits
Examine how you got into debt so you can make the necessary changes. Did you lose your job and not have emergency savings, or are you a shopaholic?

Step 3: Compare income to expenditures
Tally up what you spend each month and compare it to your income. For many people, being in debt is simply a matter of having more money going out than coming in.

Tip
Some banks offer free debt counseling.

Step 4: Lower monthly expenses
Find ways to lower your monthly expenses. Believe it or not, you can survive without cable TV, your morning latte, call-waiting, and the weekly tabloids for a while.

Step 5: Raise cash
Raise some cash – have a garage sale, get rid of stuff on eBay, give your old clothes and accessories to a resale shop, get a part-time second job – and apply the proceeds directly to your debts.

Step 6: Let others know
Explain to people in your life that you’re trying to pay off debt. They’ll be impressed and think of your new fiscal outlook as 'responsible' instead of 'cheap.'

Step 7: Pay down credit cards
Figure out how much you can spend monthly on paying down credit cards. Pay off cards with small balances or the highest interest rates first.

Step 8: Consolidate debt
Consider consolidating your debt by getting a loan that would pay off your revolving debt and leave you with one fixed loan.

Tip
If you are a home owner, you can consolidate your debts with your mortgage, which usually reduces your payments and is now tax-deductible. There may be closing costs attached.

Step 9: Firm your resolve
Resolve never, ever to live beyond your means again.

Did You Know?
In 2005, more than 2.1 million Americans filed for bankruptcy, the largest number in recorded history.