Are you in debt?  Millions of people are.  While being in debt is not a huge problem in itself, it can quickly become one if you lose your job, are in an accident, or have some other financial crisis.  Suddenly you feel bogged down and don’t know what to do.  Most people think that if they can’t pay their bills, bankruptcy is their only option.  It’s not.  There are many ways to avoid bankruptcy, on your own or with the help of others.  Just remember that you do have options and all hope is not lost.

Your first option when facing financial crisis is to not do anything.  Bill collectors may call and harass you, but they can’t really do much to you for not paying a credit card bill.  They can’t put you in jail, and if you have no money, then they can’t successfully sue you.  If there is nothing you can do, then do just that: nothing.  When you don’t pay certain bills, the company can generally just write the loss off, so it’s not really a big deal to them.  While this isn’t the best long term option, it can work if you’re only going to miss a few payments.  If your creditors are hassling you mercilessly, this is illegal and you can take action.  There are many organizations that can help you fight this kind of abuse.

When your financial situation is a bit more dire, you should consider talking to your creditors and trying to work out a plan.  Many businesses will be willing to work out a plan to get you caught up.  This is especially important if you cannot pay your mortgage bills, taxes, or other important bills.  Just remember to be prepared with financial statements and a proposed plan; this will let your creditor know you’re serious about repayment.  Another good idea for these bills is, if you can’t pay the whole bill, pay as much as you can.  This will help in your negotiation with the creditor because they can see that you are trying.   You may also consider selling off assets, but try to stay away from 401k and retirement plans, this will not only damage your future security; you can also incur large penalties.

Another important step when facing bankruptcy is to remember and protect what is important to you.  If you don’t pay your credit card bills, your credit rating drops (plus missed CC bills go off your record after 7 years); however, if you don’t pay your mortgage payment, you may risk foreclosure.  If you only have a little money coming in, pay the important bills first.  The house and car payments are generally most important, especially if you drive to work.  Paying the utilities is also important; however, if you miss one bill, they’re not going to turn off your heat or water (plus they usually give you warnings first). So if you’re just experiencing a short break in cash flow, they’re not as important.  The least important is your credit card and other similar debt.  You should also pay taxes and child support if possible, because you can get in big trouble for not doing so.

You’ve probably seen commercials for services that will help consolidate your bills and lower your monthly payments.  This can be a good option for some people, but you should also be wary.  You should always find out if the company is a for-profit organization or not.  There are many not-for profit organizations that do this kind of work; it’s best to work with one of them.  You also don’t want to think of this option as a cure all for your credit rating.  Working with these agencies does go on your credit report and in some cases is considered almost as bad as a bankruptcy.  Before you decide if you want to talk to one of these agencies, you should sit down and realistically figure out if you can pay off your current debt (debt that is due, not your mortgage, etc) in three years or less.  If you can, you should simply talk to your creditors and work out a plan on your own.

These are just a few ideas for avoiding bankruptcy.  You should remember that the best way to avoid bankruptcy is to live within your means.  Whether you’re in financial trouble or not, you should be on a budget.  If you are in danger of bankruptcy, you should try to cut back on unnecessary expenditures even more.  If possible, try to keep some money saved up in case of an emergency.  If you have tried many options, or simply can’t make sense of all your options, you can contact an expert.  Many companies offer advice on what would be the best course of action for your situation.

A credit counselor is a person who helps work with your creditors to lower your interest rates.  Credit card companies will work with these agencies because it’s better for them to work this way and get paid smaller amounts of money than to have you stop paying your bill and get no money at all.  A credit counselor will work with you to figure out a plan to pay off your debt that’s tailored to your specific needs.  You will pay one monthly bill to the credit counseling agency and they will pay your debt for you.  Besides offering you a way out of debt, a credit counselor can also act as a sympathetic knowledgeable ear to ask your questions and express your concern.

You should not think of credit counselors as a cure-all for your money troubles.  You still have to pay off your debt; they simply make it more manageable.  Plus, going to a credit counselor goes on your credit report and still significantly affects your credit report.  The affect of credit counseling is about the same as declaring Chapter 13 bankruptcy (redistribution of debt), but not nearly as bad as declaring chapter 7 bankruptcy (total liquidation of assets).   It does keep you out of court though.  Another downside of credit counseling is that you generally have to give up all your credit cards so you can concentrate solely on paying off debt.

When you decide that credit counseling is the route you want to take, you should be sure to find a reputable agency that is going to work in your best interest.  Sadly, there are lots of companies out there that are perfectly willing to take advantage of your situation if you’ll let them.  You first step is to find an agency that is not-for profit.  Most large agencies are; however, some are non-profit branches of a for-profit company.  It’s best to research the company you’re going to work with first to make sure this isn’t the case.  Plus, even if a company is a legitimate not-for profit, that doesn’t mean they have your best interest in mind.  If a company offers a quick fix if you pay an upfront fee or guarantees you help before knowing your financial situation, keep looking.  Legitimate credit counselors offer their services at very low rates, many times less than 20 dollars a month, and they will never ask for money before services are rendered.  If you’re having trouble finding a credit counseling agency you think is legit or just want help finding one, you can always check with the Better Business Bureau.  They can give you a list of reputable credit counselors that you can work with.

What you need to remember is that while there’s no quick fix to being in debt, there are people out there who are willing and able to help you; you just have to ask.