The city of Detroit recently made headlines around the world by becoming the largest U.S. city ever to be forced to file for bankruptcy protection from its creditors as a result of its inability to pay off its various debts. Of course, many cities across the country have been struggling financially since the recession hit, and the new of the Motor City's problems should serve as a warning not only to them, but also to consumers nationwide who want to avoid running into the same situation.
While it would be impossible for the average person to rack up billions of dollars worth of debt as a result of decades of mismanagement and other issues that plagued Detroit in the more recent past, many are forced to file for bankruptcy just to get out from under the massive debts they've built for themselves, which in some cases can stretch into the hundreds of thousands of dollars. Of course, like Detroit, the ways in which these people landed in that kind of difficulty so severe they had no other recourse but to file for protection is more or less the same: They let their debts spiral out of control to the point where they couldn't reasonably expect to be able to ever rein them in again.
If you're dealing with mounting debts in your everyday life, now might be the time to take a step back and think about the position into which you might be putting yourself. Bankruptcy is a long, slow, and often painful process, which by its nature should be viewed as a last resort only. Therefore, doing all you can to avoid a situation in which you'd have to file for this kind of protection — and in doing so ruin your credit score for years — is of the utmost importance.
So how do you do it?
When you're in a situation in which you feel like your debts are growing at phenomenal rates and you don't know how else to approach the situation, the simplest thing you can probably do is to just step back and assess your situation. If you have a lot of debt, you also probably don't have a good credit score at that point, and may also be setting yourself up for running into late or even missed payments because of the number of obligations you're trying to deal with at once. That, too, will serve to further lower your ratings.
The first step you should take — and it's not always an easy one to accomplish — is to stop racking up more debt. Discontinuing all borrowing in addition to what you already have in your name is the most important thing you can do to stop your debt from growing even more.
At this point, you might not know exactly what you can do, but the simplest advice is to look at your monthly bills and check to see what the minimum payments listed on them are. While it might take some serious efforts to free up a little extra cash from your monthly budget, one thing you should absolutely try to do is find the account that carries the largest ongoing interest rate and then start paying more than the minimum into that account every month. Federal law mandates that any money you contribute to an account above that listed level must be used to pay down the principal only, meaning that your debt will accrue more slowly on that account.
Once you get that balance down to a reasonable level, tackling the others in a similar fashion, working your way down from the highest interest rates to the lowest, will help you to be in a better position.
The big problem
Obviously, though, this is all easier said than done. Depending upon how much work you need to do, it will take months or even years of careful budgeting and repayments to get your balances under control and get you out from under the thumb of massive looming debts. You will almost certainly have to revamp your entire financial lifestyle to make sure that whatever threats you thought you might end up facing that would lead to the necessity for bankruptcy, but the end result will be worth it if you can avoid the situation, fix credit ratings that were perilously low, and sort out your finances.
Another important part of managing your credit, though, involves ordering copies of your credit reports with regularity. If you don't, you might not find out whether any unfair markings are having a negative impact on your score. If, in the course of checking over these documents, you discover that this type of entry does appear, you could benefit from contacting a credit repair law firm, which may be able to help you sort out the issue expediently.