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We can all hope that we never reach the point of contemplating bankruptcy. Filing for bankruptcy is a huge decision that can financially hurt you for several years. Depending on your financial situation, bankruptcy doesn’t always have to be your only option. Here are some tips to help you avoid using the “B” word.

1. Reevaluate Your Spending

If you are contemplating bankruptcy, you might want to sit down and take a look at your spending. Ask yourself, what is your income-to-expense ratio? Are you spending more than you are earning? If so, this may be the reason you are in debt – especially if you are spending more on discretionary expenses (movie channels, restaurants, luxury clothing, etc.).

Consider creating a budget if you don’t have one already, and write down your net-pay along with all of your expenses each month. See what you can cut back on. If this means canceling your cable and/or gym membership, then so be it. You can fill this gap by working out in your home or watching movies online for free. If cutting out some of your non-essential expenses means you can prolong filing for bankruptcy, then it may be worth it!

2. Say ‘No’ to More Debt

If you are thinking about bankruptcy options, then you might want to live with the debt you have – for now. Avoid the temptation of timely-coupons and spending more money at the retail stores than you have credit for. Try to cut back on using your credit cards all together to help you get back on track financially; focus on paying them down rather than using them. You might also want to delay taking out another loan, such as an auto loan or home equity line of credit. This move is likely to only make your credit score drop and cause you to be in more of a financial issue than you already are. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.) Stick with the debt you have and make it a goal to pay off as much as you can, as soon as you can.

3. Maximize Your Income

Another job might be the last thing on your mind, especially if you have a hectic schedule. Consider looking into options on the weekends or a part-time side hustle to help boost your cash flow. The extra money that you make at your additional job could be put all towards your debt. A job such as waitressing, babysitting or even taking up freelance work can all contribute to solving your financial issues.

4. Negotiate

Consider negotiating your debt with your creditors before speaking to a bankruptcy attorney. By offering to pay some of what you owe and/or agreeing to a payment plan, you might be able to trim down some of your costs depending on your financial situation. (Note: Make sure to get the agreement in writing if your creditor acquiesces.)

5. Seek Professional Help

Before signing on the dotted line, consider speaking to both sides of professional help – a debt relief lawyer and bankruptcy lawyer (Full disclosure: I am a financial attorney). You might even want to consult with your regular accountant or financial adviser if you have one already. Speak to as many professionals as you can and weigh the pros and cons of your options.

6. Build an Emergency Fund

After trimming down some of your expenses, budgeting the right way and maximizing your income, you may be able to even contribute to a savings account or emergency fund. A little here and there can go a long way. Consider establishing an emergency fund as you continue to pay down your debt in case you run into a financial issue in the near future. Your main priority may be to pay down your debt, so you don’t want a car-fix or appliance-fix to bring you back to square one.  An extra $30 a month can go a long way!

Image: MartinPrescott

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