If you are forced to file bankruptcy, especially Chapter 13 Bankruptcy, you will be forced to manage your money in a way that will severely restrict how you spend every cent. That’s because Chapter 13 Bankruptcy requires that you follow a stringent, if not regimented, budget to repay your obligations. Repayment lasts from four to five years, so, for people who have not followed a budget, this type of process can be rather challenging. However, if bankruptcy is the result of an unexpected layoff, disability, divorce, or due to medical costs, then the experience will not be quite so harrowing.

If you are someone who has accumulated a large amount of debt because you do not follow a regular financial plan, then taking out a debt consolidation loan and practicing better money management skills can turn your situation around and keep you from going through the bankruptcy process.

Once you Consolidate your Debt, Don’t Use a Credit Card unless it’s Absolutely Necessary

Choose a debt consolidation loan that will help you save with respect to the interest rate charged and cut up your credit cards, save a couple that you set aside for emergencies. Make a promise to yourself not to use a credit card unless you can afford to pay it off. Now, too, is the time to develop a realistic budget and follow it. Guard yourself and your family as well against financial loss by buying adequate insurance protection in the form of house, auto, and life insurance coverage. Avoid the temptation to make high-risk investments and, above all, make every effort to keep from spending your money impulsively.

Consult a Credit Counselor, if you Need Assistance with Respect to Budgeting and Debt Management

You may even consider, in addition to debt consolidation, to buy a house or car that is more affordable. As soon as you establish a budget, you can see where you need to cut back and what spending habits are getting you into trouble. If necessary, consult a credit counselor to establish a budget and learn debt management skills.

If you don’t believe you have the patience to pay off your credit cards one at a time, then you may be tempted to seek help through a finance company. While a finance company can make it more convenient to pay your accumulated debt through a debt consolidation loan, usually this choice is just a temporary measure until you are forced to file bankruptcy. That’s because a debt consolidation loan secured through a finance company also generally comes attached with a high interest rate, thereby making the payoff of your high-interest credit cards only a temporary way to postpone the inevitable – namely, a bankruptcy filing.

Debt Consolidation Financing – To Make it Work, you Have to Use Credit Differently

Again, finance companies just make it more convenient for you to make your monthly payment as you use the loan to pay off all your credit cards and therefore just pay the one remittance each month. Unfortunately, most people who apply for a debt consolidation loan with a finance company will continue to use credit or live beyond their means, and, therefore, in the majority of cases, end up with even more debt than they had before.

A Temporary Measure to Delay the Bankruptcy Process

Therefore, to avoid debt consolidation problems, you need to refrain from applying for any debt consolidation loans that will not substantially reduce the interest you are paying, on average, on your credit cards. You also must be committed to paying off the debt – paying, at the minimum, what you did before you consolidated the balances. Otherwise, a high-interest debt consolidation loan, as one generally issued by a finance company, is just, once more, a way to give you some time before you have to go through the process of bankruptcy.

Home Equity Loans for Debt Consolidation – Don’t Use Credit in the Same Way or you Could Jeopardize your Property

Debt consolidation problems can prevail too if you take out a home equity loan and don’t curtail your spending or alter how you use credit. Although home equity loans are lower-interest loans, they can’t help you get ahead financially if you don’t use them with the intent of getting rid of your credit card debt once and for all. Many people have had to foreclose on their homes because they continued using their credit cards in the same manner as they did before securing a home equity loan. As a result, they were still unable to effectively make an improvement in their financial situation.

Don’t Use Credit Cards, once you obtain a Debt Consolidation Loan, if you Can’t Pay off the Balance each Month

So, when it comes to debt consolidation, you need to place your focus on lowering the amount of interest you are paying on your credit cards and revamping how you use them. Only use the cards in cases where you need funds for unexpected expenses. Also, don’t use them at all if you don’t think you can pay off the monthly card balances in full once you obtain a debt consolidation loan.

Cash advances, no doubt, have led many people to have to apply for debt consolidation loans in order to reduce their credit card debt. In fact, statistics prove that cardholders of one well-known credit card company take out billions of dollars per year in cash advances. As the interest charged on cash advances is much higher than it is on purchases, credit card issuers are making healthy profits from credit card users who take advantage of this feature.

Cash Advances – Contributing to the Problem of Credit Card Debt

Cash advances come with excessive interest and high transaction fees, so if you are using the money to pay for purchases at restaurants or for non-emergency items, you need to put a rein on your spending. People usually take out debt consolidation loans to reduce high-interest credit card debt. In turn, then, cash advances contribute to the debt problem.

The Interest Accumulates Quickly

From the day you take out a cash advance at the ATM, you are paying interest on the cash you receive. You are not afforded a grace period when you take out the money either. Therefore, the high interest charges can quickly accumulate when you obtain cash this way. Unless you need the money for an emergency, such as a car or home repair, a cash advance is something you want to avoid when using your credit card. If you don’t follow a budget now, you need to create one. Seek the help of a well-regarded credit counseling agency if necessary. A credit counseling agency can also help you find ways to reduce your credit card debt or consolidate the amounts you are spending on your credit cards.

Avoid Taking out Cash Advances if you Want to Get Ahead Financially

Don’t fall prey, as many people have, to the lure of the cash advance, especially if you want to stay out of debt and get ahead financially.

Unfortunately, many borrowers, after they obtain a debt consolidation loan, continue to spend money and use credit as they did in the past. That’s why many people have had to file bankruptcy. Instead of setting up a budget and using the debt consolidation to avoid filing bankruptcy, they continued to spend money and used credit in the same way. As a result, they ended up in bankruptcy court. So, if you are serious about obtaining a debt consolidation loan, you also have to change the way you view and spend money.

Getting into the Habit of Budgeting

Many times, too, people have to opt for debt consolidation after they have already tarnished their credit. Therefore, again, you have to learn to budget your money if you want to make the best use of a debt consolidation loan and improve your credit standing.

Applying for a Secured Credit Card

One of the ways you can boost your credit score and avoid using high-interest credit cards, once you’ve consolidated your debt, is by applying for a secured credit card. If you have trouble with credit card spending, a secured credit card can help you discipline yourself in this respect as well as increase your credit score – that is, as long as you make the payments. In order to apply for a secured card, you must deposit a certain amount of money into a savings account. This money acts as security for the card. If you are unable to make the monthly payment then, the credit card issuer will take the money from savings to pay for the debt.

A Secured Card – Excellent for Re-establishing Credit

Use the interest you save from obtaining a lower interest consolidated loan the deposit. While it may take a while for you to save that amount, using the card will help you re-establish your credit if you have a blemished credit report. Therefore, if you fell behind in your credit card payments to the point where you opted for consolidation and now need to raise your credit score, a secured card can definitely help in this regard.

You Can Start Using Lower Interest, Regular Credit Cards after about a Year

It usually takes about a year to eighteen months of making timely payments on the card to move up to a lower interest, regular credit card. Therefore, make sure that the payments you make will reported to the credit bureaus so you will get “credit” for your efforts.

If you want to avoid filing Chapter 7 or Chapter 13 bankruptcy, then a debt consolidation is often a recommended remedy. Debt consolidation allows you to take all your high-interest credit card payments and combine them into one lower-interest loan amount. The idea is to reduce the interest you are paying so you can better manage your debt and start using credit more responsibly.

Set up a Budget

However, if you do pick consolidation, you also have to be careful not to use your credit in the same manner that got you into debt in the first place. Therefore, it’s important to set up a budget. Doing so can give you an idea of what you are paying each month. Statistics prove that people who file bankruptcy do not carefully follow a budget but, instead, tend to overlook the amounts they are spending.

Get into the Habit of Reviewing What you Spend

If you are swimming in a sea of debt then, take time to make up a budget and review what you are spending so you can make the needed adjustments. If you are forced to file bankruptcy, you will have to follow a strict budget anyway, so now, rather than later, is a better option if you don’t want a bankruptcy showing up on your credit report. Once you establish a budget, you will, no doubt, be surprised at the amount you may be spending on everyday expenditures.

See Where you Need to Cut Costs

Once you’ve reviewed the budget, get rid of any items that aren’t necessary from the plan. You may even have to get rid of your car and get a less expensive model or move from your house or apartment and acquire more affordable accommodations to reduce expenses. Downsizing, after all, is still better than bankruptcy.

Apply the Interest you Save to Other Expenses in your Budget

After you’ve made the necessary changes, look at what you can afford to pay in cash each month. With a debt consolidation loan obtained at a lower rate of interest, you can use the money you save in interest and apply it to your other costs. So, prepare a budget now to review your spending habits. A debt consolidation loan, incorporated into your home budget plan, can keep bankruptcy from becoming a reality.

Many people have had to resort to debt consolidation in order to avoid bankruptcy. After all, credit cards make it easy for people to make impulse purchases. Therefore, it’s not exactly surprising that a large number of people in the U.S. have had to file Chapter 13 or Chapter 7 bankruptcy. Unfortunately, overspending is encouraged on cards, what with low introductory rates and minimum payments. In addition, credit card holders that have acquired excessive debt usually do not address the problem until it’s too late. Therefore, it’s important, to learn how to negotiate with your creditors, and to contact them at the first sign of a payment problem.

Ask for a Reduction in the Interest Rate

In many instances, if you have been using a credit card for quite a while, then you can often ask the credit card issuer to reduce the rate of interest you are paying. You can begin the process by informing the credit card company that other credit card companies have sent you offers for lower-interest credit cards and see if the company can give you a comparable rate. This step, in and of itself, is a good move to make before a higher rate of interest forces you into a situation of paying your balance late or missing a couple of payments.

Ask for a Credit Limit Increase

Therefore, if you do feel the interest rates on a couple of your credit cards is excessive, contact each credit card company to see if the rates can be lowered. Or, if you’ve reached the credit limit on one or two cards, see if the credit card issuer can increase the credit limit. Doing so can prevent over-the-limit fees from showing up on your statement – charges which also look bad on a credit report.

Avoid being Looked at as a High Risk Borrower

You want to avoid the above situations as once you miss a late payment or charge over your credit limit, you will also be viewed as a high risk borrower. In order to get a handle on your credit card debt then, rank your credit cards in order of the amount of interest attached to the card, with the highest interest credit card at the top of the list and the lowest interest card at the very end.

Do Everything in your Power to Prevent a Delinquency

If you can’t pay an amount, contact your credit card company immediately to make arrangements for payment. Do everything in your power to prevent a delinquency on your credit report. Making the effort to negotiate with your creditors can give you the needed time to apply for a debt consolidation loan if necessary and still maintain a good credit standing.

The whole idea behind reducing credit card debt is to lower the amount the interest you are paying. That’s why many people take their high interest credit cards and combine them into one lower interest payment that they acquire through a debt consolidation loan. Besides debt consolidation, people also use credit crunching in order to pay down excessive credit card debt. If you want to take remedial measures to restore your credit rating and reduce your debt, then debt consolidation or credit crunching are two approaches that are definitely worth trying.

Formulate a Plan

Before you decide which of the two aforementioned measures is the best action to take, you’ll want to formulate a plan. Create a schedule that lists you debts, posting the name of the credit card issuer, the account balance, the rate of interest, and your monthly payment. List each debt so that the credit card account with the highest rate of interest is listed first, on down to the last credit card account with the lowest interest rate. That will give you a good idea of the average amount of interest you are paying and whether it is better to consolidate the debt at a lower interest rate or use the credit crunch approach.

Credit Crunching

If you do choose to credit crunch, you will need to take the schedule you’ve prepared and use it as a reference. Pay as much as possible on the first card on the list and pay the minimum balances on the other cards until you pay off the first credit card account Keep repeating the process, paying as much as possible on the second credit card, and paying the minimum balances on the other cards until, again, the first card on the list is fully paid. Keep on going until you’ve paid off all your credit cards. You may find that the credit crunch approach toward paying off debt is preferable, particularly if you don’t want to take out a home equity loan to consolidate your debt. As you stand to lose your home if you can’t meet the payment, credit crunching may be a better solution than debt consolidation for paying off the outstanding balances on your credit cards.

Many large U.S. banks offer great online services. However, it doesn’t hurt to look at local banks, where you can also find good deals with respect to low-interest loans and better credit cards rates. If you’ve paid down or paid off a debt consolidation loan, then you might be interested in taking advantage of the rates at a local financial institution and therefore moving your money from a bigger bank to a community bank or credit union.

If You’ve Had to Consolidate your Debt, you May Benefit by Looking at the Credit Cards offered by Smaller Banks

Local banks and credit unions frequently charge lower fees on charge accounts, which can feature interest rates of four percent. Therefore, one of the best amenities provided by banks locally are lower interest credit cards – something which will, no doubt, be of interest to you if you have had to go through the debt consolidation process.

Take a Look at the Services and Financial Packages Offered by Credit Unions As Well

In particular, local credit unions typically offer credit cards that come with APRs that are about twenty percent lower than credit cards advertised by major banks. What’s more, the credit cards offered by credit unions usually charge lower over-the-limit fees and late fees as well. In many instances, you’ll find such charges will cost you half of what you’d pay at large national banks.

A Move that May be to your Liking

Legally, federal credit unions are not permitted to charge over eighteen percent interest on credit cards. Plus, many small U.S. banks offer credit cards with some of the best credit card rates in the country. So, if you’ve had to go through a debt consolidation where you’ve been forced to combine a number of high-interest credit cards into one lower interest loan, choosing to switch your account to a smaller local bank or a credit union account may be a smart move.

Other Amenities

Not only can you get better credit card rates at local banks and credit unions, you usually can obtain better rates for auto and home financing and personal loans too. These financial institutions also typically give more latitude to borrowers with less-than-perfect credit scores as well.

Check out the Financials

Just make sure, if you make the switch to a credit union or smaller financial institution, that your money is FDIC insured and that the credit union or bank has a strong financial statement.

Because of the number of people who have had to opt for debt consolidation, consumers now use debit cards instead of credit cards more often. However, in certain instances, it makes better sense to use your credit card. Debt consolidation, if anything, should teach you how to use credit more wisely. Use that wisdom, then, to use your credit card in circumstances where using a debit card puts your cash flow more at risk.

A Credit Card is Generally Recommended for a Major Purchase

For example, it’s better to make a major purchase, especially online, with a credit card. Credit cards offer you the flexibility to stop payment if you are not happy with your purchase. The issuer of the credit card, too, usually investigates any problems related to purchases. If you use a debit card, however, you will need to resolve any purchase problems yourself. Plus, you can’t stop the payment as it is taken out of your checking account immediately.

Use a Credit Card for Purchasing Gas for Business or Travel

Credit cards, as well, are better used for purchases of gas, renting cars, and hotel stays. That’s because these types of establishments can put a hold on debit card funds for several days until the transaction is processed. Therefore, using your debit card at these establishments can sometimes result in overdraft fees or declines.

Rewards Credit Cards Should Not Be Used Unless You are Able to Pay off the Monthly Account Balance

Credit cards, too, give you incentives for charging purchases whereas debit cards do not offer the same amenity. However, rewards credit cards also tend to charge higher rates of interest, so they shouldn’t be used unless you can afford to pay off the accumulated balance each month.

It’s Safer to Use Credit

Take into consideration too that your liability is greater with respect to the unauthorized use of a debit card versus a credit card. While you will be liable for as much as $50 in unauthorized transactions on a credit card, you can be assessed up to $500 in liability if you don’t report a card or PIN number as lost or stolen immediately for a debit account. What’s more, if you find any questionable charges on your debit card, you must report the activity within a period of 60 days or you may be found accountable for any unauthorized transactions after the statement date.

Pay Down your Debt Consolidation and Use Future Credit with more Discernment

While over 50% of purchases are now made with debit cards, credit, when used responsibly, can be a safe and secure way to make purchases online or safeguard the cardholder in case of theft. Paying down a debt consolidation then can assist you in using future credit with more discernment.

One of the most important rules of staying in good stead with your creditor is to make your credit card payments on time. A debt consolidation then often helps borrowers discipline themselves so they get into the habit of making routine payments. It’s especially important that timely payments be made, particularly if you take out a home equity loan to consolidate debt as you can lose your home if you make payments late.

Pay Ahead of Schedule

Therefore, it’s not a good idea to send a payment on the day it is due. Check the due date and make sure you write your check or make your payment well ahead of schedule. In fact, your payment can be counted as late on your credit report, even if it arrives on the day it is due if a company, for instance, has a cut-off time of, say, 10:00 a.m. in the morning, and your remittance is received in the 4:00 p.m. afternoon mail.

Set up Electronic Payments with your Bank

One way you can avoid any chance that your payment will be late is to set up monthly electronic payments with your financial institution. Again, pay special attention to the time of day and the date that the payment will be delivered. Also, it’s a good idea to ask your bank about their policy with respect to payments that come due on either a holiday or weekend.

You Can’t Afford to Procrastinate

Making timely payments is essential whether you are paying on a debt consolidation or you currently are paying down individual credit card accounts. Therefore, if you have individual credit card accounts, then you want to make sure that any bills are paid as soon as they are received. Check the bill to make sure that all the charges are correct. When it comes to debt, you simply can’t afford to procrastinate.

Check you Statements so You Don’t Exceed your Credit Limit

Make it a habit to check your credit card statements then to avoid exceeding your credit limit. If you are near the limit, then it is wiser to either ask your card issuer to increase your credit limit or to pay for your purchase with cash. Exceeding your credit limit will cause you to pay more in the form of over-the-limit fees and will also be noted on your credit history.