The first thing to do is to sit down write out a budget, which is actually the first thing that I do when you come in to see me. I usually take about two hours with you, but if you do it yourself the process should take a few days. If you have access to a computer, there are programs such as Quicken that do a very good job of setting up and tracking a budget. Or someone at the public library, or your bank or credit union or church may have a computer program, or a set of forms that you can copy.
All you really need to set up your budget is a pencil and some paper. Try to guess how much money you will have coming in over the next year or so, including earned income, tax refunds, and regular payments from disability, retirement, unemployment, etc., and any other source. Then make your best guess about how much money you are going to have to spend for household expenses such as rent or mortgage, car payment(s), food (both groceries and eating out), utilities, phone (home phone, cell phone, pagers, etc.), cable or satellite service, Internet service, laundry, taxes, insurance, school books, tuition, day care, prescriptions and medical expenses that are not covered by insurance, and anything else that you have to spend money on. Be sure to include everything that you actually spend money on, even alcohol and tobacco. But also remember that you are making a budget, and the main idea is to keep your expenses down.
Set it all up on a monthly basis. (There are four and one-third [4.333] weeks in an average month; 52 weeks divided by 12 months = 4.333.) Then, subtract your average monthly living expenses (not including your debts) from your monthly income. If there is not anything left over, then you have a problem. Either your expenses have to be reduced, or your income has to increase, or both.
If there is some money left over, then make a plan for using that extra money to pay your other creditors. It is not easy to decide who gets paid first, but I like to pay the smaller bills first. That way, you can get rid of one or two creditors pretty soon, and actually see some progress. You should also give priority to the creditors that charge the highest interest rates, or to those who are threatening to sue you or have already sued you. Those are the bills that can grow the fastest, so you will be getting the most out of your money by paying them first.
If you can get a second job, or a job paying more money, do it. You might be amazed at how much difference a few hundred dollars per month can make.
You may want to consider borrowing money from family or friends. If you are sure that you can pay them back, and pay back all of your other debts over the next few years, then do it. If you have equity in your home and can borrow against that, do it. Just be sure that you don’t end up with two house notes that you can’t pay.
Most of all, don’t dig a deeper hole by borrowing more money than you can pay back. Be especially careful about borrowing money from your retirement plan. The money that is already in there is yours to keep forever, but if you borrow some of it and then file bankruptcy, you may never get it back into your retirement account.
You might consider credit counseling or debt consolidation, but read the warnings in the FAQ right above this one. If you expect to have more money coming in soon, you should call your creditors directly, and explain the situation to them. If you call the creditors before they start calling you about missed payments, then they are more likely to work with you.
Bankruptcy is a very serious step, and it should not be done casually. There is almost nothing worse to have on your credit record. On the other hand, if it’s the right thing to do, there is no sense in putting off the relief until later.
