The current economic downturn is a big reality check for a lot of people.  Plenty of companies are laying people off or eliminating jobs in order to save money and keep in business.  It is very easy to run up a lot of debt when you are suffering financial hardship.  You may be thinking to yourself that your current situation is only temporary and that you will pay off those debts once you return to work or you are counting on a financial windfall that is “right around the corner”.  This is dangerous thinking, you need to get a handle on your spending and find other ways to survive without running up debts that will compound in the background.  Even when you situation improves, that debt you ran up is not as easily paid off as you imagined.  The best thing you can do is to keep your monthly payments current, budget for those payments and don’t spend the money that you have set aside for monthly debt payments.

Many times high interest credit cards become impossible to pay off because the minimum payments grow larger.  You will soon find that payments you are making are mostly going to service your debt, in other words, you are paying interest and only a small amount of principal.  The best way to deal with this is to contact your bank and gather up all of your debts.  You can speak to your financial adviser about the best loan to consolidate all of your high interest rate cards and loans into one lower interest monthly payment.  It will be much easier to pay everything off with one payment per month and it will be easier to keep track of one payment rather than four or more.  The only way to pay off your debts is to ensure that you don’t run up more debt in the meantime.  In other words, don’t take out a consolidation loan and then run up your credit cards again.  Chop up those cards, don’t hold anything back, reveal everything.  A credit check will be run on you anyway, so lying about what credit cards you do own will not be a smart idea.  Make sure that your monthly debt consolidation payments are manageable so that you won’t feel the need to run up extra debt just to stay afloat.

If you contact your bank or credit card company, sometimes you can renegotiate an interest rate or lower your payments.  You may even be able to make an “interest only” payment on your mortgage if it helps you out.  You never know until you try, but don’t be intimidated.  Be honest about your situation with the person you speak to on the phone.  Have a proposal ready, for example, how much you are prepared to pay and when you can resume paying the full amount.  A bank/credit card company would much rather receive some money from you instead of nothing if you have to claim bankruptcy.

If you absolutely cannot negotiate a loan or consolidate your credit card debt, then you may need to speak to a Trustee in Bankruptcy.  You should explore all possible options before you take this step, however, because there are serious consequences from doing so.  You will lose all of your savings (if you have any left), your home, your car… and you won’t be able to get credit for many, many years to come.