Thrifty Thinking: Avoiding Bankruptcy 101

It’s not unusual to know a neighbor, friend, or loved one suffering from ever increasing debt and financial ruin. Todd Hills, credit and loan expert and CEO of Pawngo.com has put together the following tips to help you stave off pesky collectors and keep the reality of bankruptcy at bay. 

1. Contact creditors

Many creditors are willing to work with you, but they can only do so if you talk to them. Rather than avoiding their phone calls, discuss the possibility of obtaining modifications to your credit cards or loans in order to make the bills more affordable. The credit card company may be able to lower your interest rate, or if you’ve missed a payment, they can re-age the account to bring you current and waive late fees.

2. Consider credit counseling

A reputable nonprofit credit counseling agency can help you better your financial situation. Such a company provides money management advice, including budgeting assistance, and they devise a personalized plan for your situation, which may include a debt management plan. With such an arrangement, the agency negotiates with creditors for you to eliminate late fees, lower interest rates and extend terms. You, in turn, make a monthly lump sum payment to the agency, and they pay your creditors for you. Such a program generally lasts three to five years. Finding a reputable credit counseling agency is critical. To do so, consult the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies.

 

3. Downsize

Living beneath your means is the key to a stable financial life. When your debt is out of control, your best bet is to take a proactive approach and get rid of items before you lose them. For instance, if you have two cars and are struggling to make the payments, selling the most expensive car before it’s repossessed gives you money to pay down debt and helps you avoid having a bad situation turn worse.

4. Increase Income

Making more money and earmarking it for paying off debt is a good way of pulling yourself from the brink of bankruptcy. If possible, work overtime or find a second job. Other good options for raising funds that you can do on your own include babysitting, assisting seniors, renting out a room in your home and capitalizing on your talents, whether it's tutoring, giving music lessons and doing carpentry work.

5. Build an emergency fund

Chances are if you’re considering bankruptcy you don’t have an emergency fund to fall back on. If you stash cash in a rainy day fund, you’ll be much less likely to consider bailing out with bankruptcy. Build an emergency fund by starting small. Once the balance starts to rise, you’ll find yourself more optimistic about your financial future and more likely to save even more. Bankruptcy is a serious financial move best reserved as a final resort. Knowing alternative options to bankruptcy helps you avoid this potentially negative life-changing financial move.

 

 Todd Hills is the CEO of Pawngo , the first full-service online pawn shop in the United States. After more than 25 years owning and operating brick and mortar pawn shops, Hills decided to bring this 3,000 year-old industry online. In 2009, he launched a successor to “Internet Pawn” called Pawngo based in Denver, Colorado. Hills continued to grow the business and re-launched the company in 2011 as Pawngo with Lighthouse Bank as its main investor.