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Cutting Expenses to Avoid Bankruptcy

Updated on September 11, 2012

If you are falling behind on bills and aren't able to make all ends meet, you may be feeling a great deal of stress. You probably also worry whether or not bankruptcy is imminent. There are also other options that should be fully researched and explored. Bankruptcy should be considered your very last resort for solving your financial crises. Bankruptcy is a consideration that should not be taken lightly. It is a step that should be taken only after careful consideration and study. Don’t let your creditors control your life by forcing you into a decision that you will regret.

Look at Your Financial Situation

If you think bankruptcy may be in your future there are a few things you can do to determine whether you have any other alternatives first. You need to understand why you are facing this situation to begin with. This requires you to take a long, objective look at your financial situation. Objectivity is a key issue here, no blame should be placed on anyone and no excuses like “well I really -had- to have that”. Pretend as if you are looking at a stranger's information and get into that mindset. Before a solution can be reached, the real problem must be identified. It is your job to try and figure out what exactly that problem is. This is a personal challenge because only you can identify whether the source of the problem is related to healthcare, education, economic problems, or spending too much on luxury items.

Medical Bill Help

Once you have determined the cause of your financial problems, you can begin to recover. If your underlying problem is because of medical bills, there are a number of agencies that can help, most of which are unknown to most because hospitals are only allowed to give out information to hospital collection agency in order to recover the money you owe. That means that the assistance programs have no way of getting in contact with you or even knowing you were ill. In order to find valuable information, you can look for local support groups and attend a meeting. American Heart Association, American Cancer Society, and Easter Seals can help with referrals.

Talk to Your Lenders

If education is determined as the cause of the financial issues and school loans are eating a lot of your money, you may consider consolidating them, if you haven't already. Economic hardship is a valid excuse to apply for deferment or forbearance on your loans which means it gives you a 6-12 month break from paying the loan. Sometimes this helps to get you back on your feet, but keep in mind that the interest still adds up and you will eventually pay thousands of more dollars than you originally borrowed, so you'll be paying for the loan a lot longer than the original terms. Sometimes lenders can even get your payments reduced because the amount of your loan payment is out of proportion with your income level. Call your lender and talk to them about your situation and they can usually provide you with answers.

Lifestyle Changes

Overspending is one of the most common causes of financial problems. This situation is tricky because it involves a lifestyle change in order to stop. Most people cut back on their spending and then years later the problem is back, or sometimes even months later. If it were that easy for you to stop spending, wouldn't you have done it before you landed in credit card hell in the first place? Luckily there are groups that can help and support you. Seek out a Debtors Anonymous.

Listing Expenses

After you have pinpointed the problem, you can come up with a strategy to deal with the situation head on. This is the painstaking part where you must go through all your bills and list each creditor and the amount of money you owe to each. You are going to need to make two separate lists: one for installment payments and another for household expenses. Begin listing your monthly household expenses. These expenses include:

  • estimated food costs
  • medical and life insurance premiums
  • medical supplies
  • internet

  • rent
  • utilities
  • auto
  • association fees
  • cable tv

Installment Expenses

Next make a list of your installment payments. These include:

  • mortgage
  • medical bills
  • credit card companies
  • banks finance companies


Cutting Expenses

Now that all your monthly expenses have been totaled and listed out on paper, compare the amount to your monthly income. If you've been having trouble paying the bills, you already know that your expenses outweigh your income, but there are ways to cut down on your expenses. The first step in cutting expenses is by asking yourself what expenses must be kept current in order to keep health and home intact. Mortgage and rent payments take priority over everything else. Utility bills are also important but there are ways to cut down these expenses in order to have more money to go toward rent or mortgage payments.

Here are some tips for cutting expenses:

  • There are ways even to save money with utility bills, for example, if you are used to keeping the air conditioner at 65 degrees, you can save a substantial amount of money by keeping the home a few degrees warmer. Increase the temperature in the home as high as you can tolerate without being dangerous. For example, keep the thermostat on automatic and select a temperature around 78 degrees or higher if you can stand it and you will be able to save drastically. The same applies to the heater. Keep the heater thermostat as low as possible and consider wearing extra clothes to keep warm. Water bills can also be reduced to save you money. Be contentious about water usage and always turn it off when it isn't in use.

Saving on Phones

  • Consider your telephone bill. Do you have a land line, as well as a cell phone? If so, you can completely eliminate your land line and use your cell phone for communication. This saves you a good amount of money if you don't need the land line. These days, hardly anyone has a home phone anymore because the popularity and convenience of using a cell phone. If you have a cell phone you can consider eliminating a land line phone. If the land line is your only form of phone, then change your package to the very bare bones package. This means downgrading from all the services and features provided by phone companies. For instance, get rid of caller ID, call forwarding, call waiting, and 3-way dialing. All of these are added features that are luxuries that cost a monthly fee, and you can do without when trying to save money.

Cut Back on Cable Bill

  • Cable television is also a way to cut expenses. Consider the amount you are paying for cable and cut back to the bare basics if you have any special packages like costly movie channels. The more channels you have the more money you spend on your cable bill. First, call and cancel all the premium channels and go with basic cable. If your monthly expenses are still too high, considering canceling your cable completely. With a good antenna, that can be purchased in stores like Walmart, you can still get basic “network tv”.

Save Gas

  • If you use a vehicle to commute back and forth to work, consider using the lowest octane gas because it is usually cheaper. You could also save a great deal of money carpooling and finding ride share programs. Often if you work in a metropolitan area and live in a suburb there are places to park and ride. Using places like these reduce the amount of gas you use commuting to work and cut expenses.

Save on Groceries

  • Saving on groceries is fairly easy. There are discount grocery stores available in some locations that offer lower prices for the customer taking responsibility in bagging their own food items. Coupons are abundant and come in the mail weekly or even daily sometimes. Cutting coupons can save you a little bit of money on each trip to the grocery store but added with the other expense cuts, they help out.

Save on Pharmaceuticals

  • Save money on pharmaceuticals, both OTC and prescriptions by using generic brands, or in the case of OTC medications—store brand. Store brand medications can be purchased at half the prices of the name brand products. The same goes for generic prescription medications. The only problem with prescription drugs is that in order for them to even make a generic, the drug has to be around 10 years old. So that means some of the newer medications will not be available in generic form and you will need to talk to your doctor to see if there is any similar type of medication that works the same and has been around longer so you can get a generic form.

When paying bills, prioritizing is a necessity. You don't want to end up losing your home because you just couldn't get rid of cable. Experts say to prioritize and pay monthly bills in the in the following order:

  • mortgage or rent
  • utilities
  • secured debt
  • credit cards and unsecured debt

Pay Small Bills Last

Remember, that is always advised, no matter how tempting, never to pay small bills first. This is a common mistake made by many people because it seems easier. The first bills to be paid each month should be your mortgage or the rent on your house or apartment. On your list of expenses, highlight the most important bills and pay them first each month.

Do you have any ways to save on expenses? Add your own tips in the comment box below.

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