The internet is full of sites dedicated to helping you get out of and manage debt. Bookstores have whole sections devoted to the same thing. But sometimes you need more urgent help than that. Debt snowballs, budgets, and long term money management programmes are great, but they won’t help you if you are on the verge of bankruptcy.

Here are 10 tips to help you avoid the dreaded ‘B’ word.

Stop spending

As shocking as it may be, many people on the road to bankruptcy never stop spending money. Clamp down on all unnecessary expenses and even cut needed ones to the bone. You can live on plain pasta and rice for a while. Don’t even worry about a budget right now, just stop spending money.

Prioritize debts

At some point in the future, you may wind up defaulting on a loan or credit account. Sit down and prioritize the debts that you have in the order of which one will I pay first down to which one will I pay last. Mortgage and car payments should rank at the top of the list.

Sell assets

Cars, houses, stocks, anything that can bring in a decent hunk of change. If you live in a metropolitan area, chances are you can make do for a while using a combination of public transportation and your feet.

Contact creditors

Call all of your creditors and explain to them that you are in deep financial straits and confirm your commitment to pay them. This lets them know that things aren’t going great for you right now and that you are concerned about paying them back. Record the name and conversation details of everyone you speak with.

Negotiate new terms

Talk to each creditor again, and try and get them to reduce interest rates or minimum payments. For loans try and have the installments extended so that you can lower the monthly payments. See if they will let you skip a payment or two and just add the interest to the balance. It is important to do this after the first contact so that it isn’t the first time they hear from you.

Negotiate settlements

Call each creditor again and try and get them to accept a settlement on the debt you owe them. This is actually two steps, since you will want to do it again after step 9. I know it seems like you could accomplish steps 4-6 in one call, but persistence can pay off and you may not need to do the same thing with each creditor. Some may offer to work with you right away, and others may need some prodding. You may find that skipping a few payments is all you need from some creditors and on others you will need a settlement to be able to stave of bankruptcy.

Seek a consolidation loan

While I don’t recommend them, consolidation loans can be a last ditch effort to stave off bankruptcy by getting all of your accounts current and reducing your overall interest rate to lower your monthly payment.

Seek credit counseling

Sometimes credit counseling services can actually get your interest rates severely slashed or even suspended in order to facilitate payback of the principal.

Default on low priority debts

Letting go one or two lower priority debts can free up some cash to focus on other debts. This is a desperate step, but it can keep you out of bankruptcy. Be sure to call any accounts that you default on and try and work out a settlement. If not, you can repay the debt later when you are on more stable financial footing, only you will most likely be dealing with a debt collector by then.

Seek an ITSA agreement

The Insolvency and Trustee Service Australia is the government entity that deals with personal bankruptcy proceedings in Australia. They provide three manners to deal with unmanageable debt, and two of them, a Debt Agreement and Personal Insolvency Agreement, stop short of bankruptcy. Their website is full of information on both of these options as well as links to agencies that can help you avoid bankruptcy.

Conclusions

These steps are not really designed according to long-term financial prudence, as several of them will wind up adding to your overall debt situation, but they may be able to free up enough room to keep you solvent right now and that dictates your main course of action right now. Once you escape the immediate specter of insolvency, you can work on managing the debt better.

Bankruptcy is an ugly thing to go through so don’t give in just because it seems like you have no choice. In most cases you can avoid bankruptcy if you work at it. I cannot stress enough the need to call and negotiate with your creditors. With today’s financial climate and rates of default, lenders are more willing than ever to help you pay them back. And while it will be a struggle, paying them back is the best thing you could possibly due.

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