There are all kinds of different things that can mess up our finances and most people at some point in their life will find themselves in a spot where they struggle financially. The severity of the problem can range from being a few days late on a payment to being months behind on everything and trying to figure out where you're going to live and how your going to eat.
Most people who can't pay the bills get so distracted that they have a hard time seeing options and discovering solutions. The stress and fear over what's happening crushes them. The confusion in their life makes it difficult to see any hope for the future and all too often they just give up and file bankruptcy.
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Bankruptcy is not the best solution. I'm not saying that absolutely everyone can avoid bankruptcy. But there are millions of people who could if they fully understood what was happening to them and knew what to do about it. That's why I'm going to tell you exactly what to do when you can't pay the bills.
The first thing you need to do is stop borrowing money. If you still have credit privileges don't use them. If you already have more bills than you can pay it doesn't make sense to keep adding to the pile. Realize that borrowing from friends and family may jeopardize relationships. Also be cautious of debt consolidation loans. Consolidation loans may postpone the suffering but they rarely solve the problem. Keep in mind that you cannot borrow your way out of debt.
Realize that attorneys fix things legally. Attorneys are highly skilled professionals who are trained to solve legal problems. If you take a financial problem to an attorney the legal solution would probably be bankruptcy. Depending on what stage you're in you may not have a legal problem, only a financial problem. So the second thing you need to do is decide that bankruptcy is the last resort and you're going to fight it until you've done everything you can possibly do to get back on track.
It's common for people to become paralyzed from fear, anger, guilt, confusion, stress, depression, and even embarrassment when they find themselves in a financial mess. These are all emotional states. A financial crisis is not the time to be making emotional decisions. If you react to your circumstances with emotion you will become stuck. If you get the emotions under control then you'll be able to respond in a manner that will help solve the problem. You need to think clearly so you can work your way out of the mess. So the third thing you need to do is get your emotions under control. Realize that your situation is temporary. You will get through it.
Much of the emotion or feelings you have when you can't pay the bills come from collections pressure. Do not avoid your creditors. What do you do when collectors call? Talk to them! Even if they are calling and leaving messages while you're gone, call them back. You must communicate with your creditors. If you stop all interaction with your creditors the only option they'll have left is to sue you. You have to talk to them! What do you tell them? Tell them what you're doing to correct the situation. You can even call and let them know that there haven't been any new developments but you're still working on the problem. They may not act like what you're telling them is acceptable but you are communicating with them. That shows that you're not afraid of them and you are concerned about getting them paid. You are temporarily trading communication for payment.
One of things you need to talk to your creditors about is your plan. Don't let your creditors guide your steps. You have to develop a plan of attack that allows you to take control of the situation. Your plan of attack should include a spending plan. You use the spending plan to take the money you do have and mange it wisely. The first things you pay for from that spending plan are necessities like food, shelter, clothing, transportation, and utilities. What I'm talking about is maintenance or replacement of basic necessities. Most people who are working can cover the cost of basic necessities. When basic necessities are covered you can function. If you can function you can fight your way out the mess.
If you can't meet the minimum payments on your debt after you pay for necessities then your plan of attack needs to include a Pro Rata Plan for distributing any money you have left among the creditors.
Your plan of attack should include a list of ideas that can be used as an inventory of solutions to your financial problem. If you're already down to the rice, beans, and water thing you probably don't see a way to cut expenses any further. Well, dig a little deeper. Examine every aspect of your financial life. Can you sell a car, get rid of the payment and drive a junker for a while? What about the house, would selling it help get the debt cleared off? Would it cost less to rent for a while? What about all the things in and around the house. Your possessions. Is there something you can sell to raise some money. These are just material things that can all be replaced. You can have them all back. Many times in severe cases it's trying to hang on to material things to long that make a bad situation even worse.
So the first part of creating a plan is to work out a spending plan for the money you do have. From that plan you pay necessities first. You send creditors their portion of what's left after paying necessities. Then you pursue every conceivable way to lower expenses, increase income, or raise money.
What this allows you to do is since you have a spending plan you have already determined where the money is going. You don't even have to think about it. If the necessities are paid then you're surviving and the family's basic needs are being met. If the creditors are getting something then the pressure may not be completely off but you have bought yourself some time. Time to pursue income, think, and find a solution to your problem. You've taken control and put priorities in order. A plan like this along with constant communication with your creditors is the best chance you have at staying out of bankruptcy court. It will buy you time and help protect your credit rating.
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