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How to Avoid Bankruptcy

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.
  • FACT: In 2005, more than 2.1 million Americans filed for bankruptcy, the largest number in recorded history.

You Will Need

  • An itemized list of everything you owe
  • Bank statements
  • And credit card statements

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