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Managing Your Debts to Avoid Bankruptcy

If you are up to your ears in debt, your finances are moving from bad to worse, and you're having bad dreams about bankruptcy, quick and decisive action may prevent those nightmares from becoming a realty. This website reviews the steps you can take to get out of debt and stay out of bankruptcy court, inluding learning how to live on a budget, making more money selling some of your assets, negotiating with your creditors, and consolidating your debts.

If you don't feel confident about managing your debts yourself, this information also provides an overview of how to find a reputable nonprofit credit counseling agency that can help you. In addition, this website warns you about actions you should never take when you're struggling with your debts, such as taking out certam types of loans or writing bad checks.

Build a Get-Out-Of-Debt Budget

Your very first step when your finances are in a downward spiral should be to set up a household budget that allocates your dollars toward your most important living expenses and debts. If you already have a budget, review it for changes you can make that will help you meet all of your financial obligations and pay off your debts faster. Those changes may include reducing your spending on nonessentials and even completely eliminating some of your expenses. When your finances improve, you may be able to add them back into your budget.

How To Set Up Your Budget

Begin the budget building process by determining exactly how much you are currently spending. To do this, review your bank statements, check registers, credit card account statements, and any other spending records you may have for the past 12 months. If you are married or live with a partner, your spouse or partner should go through the exact same exercise.

Next, figure out your current total monthly mcome, including your monthly take-home pay (your gross income minus all tax and health benefit deductions) and any other income you receive on a regular basis, such as rental income, child support and/or spousal support payments, royalties, and the like. Be sure to include your spouse's or partner's monthly income as well.

You`ll notice that the worksheet groups your expenses into three different categories: fixed expenses, variable expenses, and periodic expenses. Let's take a closer look at each.

Fixed Expenses
Fixed expenses are expenses that do not change from month to month. They include your mortgage or rent payment and the payments on your car, your home equity loan, and on any other loans you may have. Your fixed expenses also include the amount you spend every month on such items as insurance, child care, tolls and parking if you drive to work, cable or satellite service, Internet access, court-ordered child support and/or spousal support, a monthly gym membership, and the like.

Variable Expenses
Variable expenses are expenses whose amount changes each month. Common types of variable expenses include groceries, gas for your vehicle, restaurant meals and snacks, entertainment, utilities, dry cleaning and laundry, and spending on clothing and body care services (e.g., manicures and massages).

Periodic Expenses
Periodic expenses are expenses that you only pay once in a while, such as tuition, insurance, auto registration, haircuts, and property taxes. Even though you only pay these kinds of expenses occasionally, every month you show be setting aside the money you will need to pay each of them when they come due. To determine a monthly amount to save for each of your periodic expenses, calculate the total annual cost for each of your periodic expenses, and then divide the amount by 12 (for 12 months) to get a monthly amount. Record the monthly amount on your budget worksheet.

Avoid Bankruptcy - Mortgage Foreclosure
Tip Alert

If you are in debt and are currently saving money in a savings account stop. It is more important for you to get your debt in check by paying down the high-interest debts asap.

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