Dealing With Debt: How to Battle Bankruptcy When All Seems Lost

When facing a surmounting debt problem, your worries might first tend towards the food in your cabinets, the clothes on your children's backs, or the mortgage payment for the home you're living in. It can be easy to forget that on top of all of that debt can have a tremendously destructive impact on your credit score, and can carry legal implications if you've been habitually negligent or dismissive of debt collectors. You're not alone - in fact, a recent study illustrated the fact that a whopping one out of three U.S. adults have debt in collections.

Most people's impulse is the escape their crumbling financial situation by turning towards short-term solutions, such as the dreaded payday loan. Despite the fact that these loans carry prohibitive interest rates, most people in serious debt are too concerned with the day-to-day survival of their household to consider more reasonable options to resolve their financial situation in a sensible manner before resorting to inevitable bankruptcy.

So, what is the sensible way to approach an impossible-to-pay debt?
1. Stop the behaviors that got you here in the first place!
The most tragic part about personal debt is that it is often preventable by following simple financial practices. People who spend more than they earn without considering their month-to-month leeway, make unplanned purchases, or neglect even the most basic aspects of maintaining the budget quickly find that they can hold on to a dollar about as well as one can hold onto water. Recognize these behaviors and others in order to prevent from getting into this situation again - or making your bad case even worse.

2. Work with your lenders
Debt collectors may be rude and threatening, but it's their job. More importantly, they might not even be a problem if your debtors were aware of your financial situation. Most reputable institutions are willing to listen to people under extenuating circumstances and alter the terms of the loan based on your personal situation. After all, for the most part their end-game is getting money from you under terms that you can manage - not drive your credit into the ground and end up with a defaulted loan.

3. Prioritize your highest interest debts
During times of financial crisis, it is best to put a hold on any low interest accruing accounts except to avoid delinquency. Instead, prioritize on your debt which is accruing the largest amount of interest. This means contributing more than the minimum payment as much as possible on these accounts, and then prioritizing the next highest interest rate once that one is paid off. For any hope of getting past a stage of crippling debt in your lifetime, focus on cleaning up the nastiest interest rates in your debt portfolio first.

4. Consider long-term payment plans for drastic situations
"If it seems too good to be true, it isn't." There's an expression with more than a grain of truth. And this comes to mind whenever one hears about the services offered by debt counseling services. However, while you should always be wary of institutions which make hard and fast promises such as "debt free in 12 months", debt counseling can be a very viable option to those with unmanageable debt situations. As long as you take care to pick the right debt counseling service for you, you can find that managing your debt is far simpler and interest rates become significantly less problematic when your case is being dealt with by a reputable service.

While being in debt to your eyeballs can be overwhelming, remember that communicating your situation to debtors, keeping your own spending habits in check, and reviewing all of your options are all necessary courses of action before your situation snowballs into something even worse.

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