Avoid Bankruptcy. Debt Reduction for the New Year

You have a lot of debt and are tired of circling around the issue. This year you’ve decided to take back control and wrestle your debt to the ground. Your hope: to avoid filing bankruptcy but basically to eliminate your debt once and for all.  Here are five debt reduction resolutions to help you get your fresh start to the New Year.

1. Reduce your credit card debt

avoid bankruptcy debt resolutionsThe average bankrupt has 4 credit cards, more often than not fully tapped out at the time of their bankruptcy. On average they owe almost $24,000 in high interest credit card debt. At 18% to 24% interest, these debts are impossible to pay back a little at a time.

If you want to avoid bankruptcy you need to take control of your use of credit cards. Begin by stopping the cycle. If you can’t pay off what you spend every month, cut up your credit cards and stop using them. Begin aggressively paying down your credit card debt before it reaches bankruptcy proportions.

2. Tackle Your Spending Habits

If you don’t have enough money in your budget to pay off your debts, you need to tweak your budget. This is assuming you have one. If you don’t, creating a budget should be your first priority.  Go through each expense and see what you can reduce to free up cash to pay down your debts.  Your other option is to look for ways to increase your income, just be sure to apply any extra earnings to debt reduction, not new spending.

The higher your debts, the harder you will need to look at reducing your spending. Paying off debts on your own before you need to file bankruptcy will require both persistence and sacrifice.

3. Pay Your Bills On Time

While you are trying to reduce your overall debt, you should also make sure you are paying all of your monthly bills as they come due each and every month.  Getting behind on bills only results in calls from collection agencies or cut off services. Once your debts get too far behind, bankruptcy may become your only option.

Paying your debts on time also helps improve your credit rating. Depending on how much debt you have, you may want to consider a debt consolidation loan to help you reduce your interest costs. Having good credit is critical if you want to qualify for a consolidation loan at a reasonable cost.

4. Avoid New Debt

Your firmest resolution should be to stop using credit until your debts are under control. Yes most of us will have a mortgage and many rely on a car loan. Having zero credit may not be an achievable goal, however your debts need to be manageable.  Until they are, stop taking on new debt.

5. Talk to an Expert

It is very possible if you stick to your resolutions that you can reduce your debt on your own. However, it’s also possible if your debts are too high you can continue to struggle for another year with little results at the end of the year except more frustration, and possibly, higher debts.

There are alternative debt relief programs that can help you eliminate your debts and still avoid bankruptcy. If you think your debts are too high to manage on your own, talking to a debt counsellor, including a bankruptcy trustee, early in the cycle keeps more options open to you.

Category: Debt Management |

Jan 2, 2014

About Sharon Hoyes

Sharon Hoyes, CA, CPA is a Chartered Accountant and Managing Editor at MoneyProblems.ca writing about personal finance and consumer news and how it affects your debt.

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