13 Ways To Avoid Bankruptcy When You’re Drowning In Debt

Unlock the secrets to financial resilience with these 13 bankruptcy-busting tips.

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Updated July 18, 2024
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If you’re buried under a growing mountain of debt, bankruptcy might seem the best (or only) way to eliminate financial stress.

But while bankruptcy can offer you a clean slate under dire financial circumstances, it’s an extreme solution you may not have to take, especially when a series of smaller steps can help reduce your debt over time.

Keep reading to learn about 13 key strategies that can help you get a handle on debt instead of propelling you closer to bankruptcy.

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Pick up a side hustle

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The quickest way to deal with debt is by paying off as much of your principal as possible so you can reduce the overall amount you pay in interest. 

While cutting down expenses is a good way to make extra money, getting a part-time side gig and devoting those funds to debt repayment can drastically decrease the time it takes you to get rid of debt completely.

Tally your income and expenses

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Once you’ve made a comprehensive list of your debts, make a similar list of all your sources of income. Then, list necessary expenses like groceries, future utility bills, and childcare costs. 

Calculate how much money you have left over each month after making debt payments and paying for essential expenses — then start crafting a more streamlined budget.

Eliminate unnecessary expenses

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Right now, your top goal is avoiding bankruptcy. As a result, you likely need to create a stricter budget than you’re used to so you can put as much money as possible aside for debt payments. Start by cutting out all nonessential purchases.

For instance, have you signed up for monthly subscriptions you haven’t used in months? Are you eating out for multiple meals a week instead of cooking at home? 

Stripping as many nonessential purchases as possible from your budget gives you more freedom to focus on paying off debt quickly.

Resolve $10,000 or more of your debt

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Understand exactly how much debt you have

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Before creating a plan to start coping with your debt, you need to understand exactly how much debt you have. 

Tally up any debt you’ve accrued across various credit cards and loans. List the total amount of money you owe, your interest rates, due dates, and required monthly payments.

Ask about a raise

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Before getting a side job, make sure you’re getting the most out of your primary job. Talking directly to your manager about a raise can be intimidating, but advocating for yourself in the workplace can pay off. 

Consider asking your supervisor if there are specific goals you need to meet to qualify for better compensation, then set a timeline for doing so.

Pay off high-interest debt first

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If you’re juggling multiple debts, consider prioritizing which debts you want to pay off first. 

While you should still make minimum payments on each debt whenever possible, consider putting more money toward your highest-interest debts. Accruing less interest will make your overall debt easier to cope with.

Reevaluate your grocery-shopping habits

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Do you shop at the same grocery store out of habit or because it offers better discounts and shopping deals than other grocery stores in your city? Do you remember to clip coupons on your store’s customer loyalty app before shopping?

Finding grocery stores with better prices and using smart shopping hacks might seem like small steps, but the savings will add up over time. 

More importantly, shopping on a stricter budget can help you build useful spending habits that keep your debt manageable from this point forward.

Buy generic products only

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Do you buy generic brands whenever possible instead of splurging on name-brand products? If not, it’s time to reevaluate. 

Whether you’re shopping for pasta, shampoo, shirts, or shoes, steer clear of pricey name brands in favor of more affordable, generic alternatives and put that saved money toward debt payments.

Consolidate multiple debts into a single loan

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Are you currently paying down multiple debts on different repayment schedules and at different interest rates? 

A debt consolidation loan condenses your different debts into a singular debt with (ideally) a better interest rate, making paying off debt and avoiding bankruptcy easier.

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Sell stuff you don’t need

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Looking for more ways to increase your income beyond picking up a part-time gig? Consider selling items you no longer need. 

Listing your old clothes, books, or bikes on Facebook Marketplace or Craigslist might not make you a lot of money, but every cent you can put toward getting rid of debt counts.

Think hard about downsizing your home

Rawpixel.com/Adobe managing the debt

If small measures aren’t doing enough to cut down your debt, it might be time to take more drastic measures to stave off bankruptcy. 

While selling your house and downsizing to a smaller property requires a lot of time and effort — not to mention emotional strain — the financial payoff might be the boost you need to eliminate debt.

Talk to a financial counselor

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Creating your own debt repayment strategies is tricky without a solid financial background. Personalized, expert guidance from a certified financial counselor can get you on the right path toward eliminating debt for good.

Remember that your won't have to be this strict forever

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Tightening your purse strings can be draining. Spending only what you need and not a penny more might feel punitive, especially if you have to give up enjoyable activities like vacationing to focus on paying off debt.

If you’re struggling, it might help to remind yourself that this stricter budget is necessary right now to boost your bank account — but it shouldn’t last forever. 

If you can buckle down now to cope with debt, you’ll have the financial freedom to do what you love later in life. Keeping this in mind can make your current sacrifice feel more doable.

Bottom line

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In all but the most extreme circumstances, you might be able to dig your way out of debt with less drastic measures. Try these money moves to start crushing your debt one day at a time.

Bankruptcy can give you a fresh start if your financial situation has gotten out of hand. It might be worth talking to a financial advisor about whether or not you should consider bankruptcy a viable option.

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Author Details

Michelle Smith

Michelle Smith has spent a decade writing for and about small businesses. She specializes in all things finance and has written for publications like G2 and SmallBizDaily. When she's not writing for work at her desk, you can usually find her writing for pleasure near large bodies of water.