Nobody wants to file bankruptcy unless it is their last option.  In my office, I have every client sign a paper indicating that they believe that bankruptcy is their last option.

Below are some ways to handle debt problems that do not involve bankruptcy.  Whenever you look at your options, be sure you look at all of your options, including ones you don’t think you’d like, then pick the one that’s best for you.  Be sure to “rise above the treeline” to see where each road goes.  If can’t see yourself going all the way down a certain road, then should you even take one step in that direction?

Use Cash Savings To Pay Your Bills On-Time.

Paying on-time and in-full is a great idea, but it is not usually a workable option when you are having money troubles.

Most people I see for a bankruptcy consultation have experienced a divorce, a job change or health change that led to an income change.  Each one of those can happen despite the best preparation, and each one can make it difficult, if not impossible to stay current on your bills.

When you are having money troubles, you want to make sure that you use cash flow, not cash savings, to pay your credit card bills.  When times are tough, “cash is king.”

If you realize that your cash flow will soon be not enough to stay current on your bills, then you may want to hesitate using cash savings to stay current on your bills “just to maintain your credit.”  You may have a more important use for your cash savings if you are having money troubles: you may need it for necessities rather than using it to pay credit cards.

Here’s a case in point:  I had a couple that came in for a consultation and they were current on all of their bills, but they just received notice that his income was being cut as a result of some across-the-board cuts at work.  They also received notice that his job would move to a different city in 6 months.  They have $3,000 in cash and wanted to know if they should pay that toward bills “just to save their credit.”  I asked them to perform a gut-check:  If you can’t see yourself going all the way down a certain road, then why take even one step in that direction?

Here are some questions I had for them:

1. They had to pay for their move to the other city, so I asked them how they would do that if they used their cash to pay off some bills.
2. I asked them if they had estimated their new income level and what their new living expenses would be after the move, and whether they would need any of their cash savings to make ends meet.
3. They could break-even if they sold one car, so I asked if they would need to sell that car and then use the cash to buy a cash-car, just so that they could make ends meet at the new income and expense level.

They didn’t have a clear idea as to the answer to those questions, and they started to feel uneasy about the idea of using their cash “just to save their credit.”  Perhaps you can identify with their stress and uncertainty.