Bankruptcy is a difficult topic to discuss, and declaring personal bankruptcy is an even more difficult decision to make. While it may provide financial relief, you should consider other alternatives to filing bankruptcy before making this tough decision.

Call Your Creditors – Don't hide from your situation. To see if your creditors can help you, give them a call and explain that you're having trouble with your finances. If you explain that you are considering bankruptcy, they may be able to give you an alternative payment plan to help you get through the difficult time.

Write Out a Budget – The first thing you should do before making any big decision is take a hard look at your financial situation. An organized way to do this is to write out a budget. You should include detailed information on the following:

• Monthly household income
• Monthly household expenses

Understanding how you are spending your money may help you get a handle on your finances and avoid bankruptcy. You'll be able to see areas where you can decrease your spending, such as eliminating the premium channels from your cable service or switching to a free Internet service. You may wish to review our article on preparing a budget or you can try our online budget worksheet. Remember to have your income and expense information handy (e.g., pay stubs, and copies of bills and statements).

Balance Transfer – You may be able to transfer a balance from a high interest rate card to one with a lower rate. If you already have a credit card with a low interest rate, you might consider transferring the balance from a high rate credit card to the lower rate one. You may also be able to apply for a new credit card with a lower interest rate. Be careful about introductory rates, also called teaser rates. If it's too high, this option may not be your best choice. Make sure you know what rate will be in effect after the first couple of months. See the Baltimore Better Business Bureau article Credit Card Offers: What's the Catch? Use our onlinecalculators to help you evaluate whether credit card consolidation may help you.

Refinance a Loan – If you're able to get better terms, it might be a good idea to refinance a car loan or mortgage. Review the information carefully; you could save a lot of money.

Borrow Money from Family – You may have family or friends who could loan you money to help pay off high rate debts to avoid bankruptcy. Remember to treat this type of loan just as you would any loan from a financial institution and pay it back on time.

Get a Debt Consolidation Loan – If a bank finds you creditworthy, you could get a debt consolidation loan to pay off your credit cards as an alternative to filing bankruptcy. To get more information on creditworthiness or debt consolidation loans, you may wish to read our related Knowledge Center Articles.

Borrow Money from Savings – Depending on your situation, it may be an option for you to borrow against your IRA or 401(k) to pay off credit cards or loans that have a higher interest rate. See the Investopedia articleBorrowing From Your Plan for advice about taking money from your IRA or 401(k). Also refer to the International Association of Professional Debt Arbitrators article 401K Hardship Withdrawals – An Overview for information about the Internal Revenue Service rules on retirement plan loans. Before borrowing against or using your savings, you should compare the amount of debt you have to the amount of savings you have.

Credit Assistance – What if you don't find any breathing room after looking at your finances? You may think that there is no alternative to bankruptcy. You don't have to make that decision yet. Credit assistance programs may be able to help you. You've probably seen ads on television or in your yellow pages for debt or credit counseling. Credit Assistance organizations manage your unsecured debt through a debt management program to help you avoid bankruptcy. See the U.S. Federal Trade Commission article Fiscal Fitness: Choosing a Credit Counselor.

Working through Debt Management programs, creditors may offer benefits that can help you avoid bankruptcy for your unsecured debts, such as:

• Lowered monthly payments
• Reduced or eliminated interest rates
• Eliminated late fees

There are many options available to you if you're in a financial bind. Before you make an irreversible decision to file bankruptcy, consider all of your alternatives. Look carefully at other options and choose the best one for your situation. In October 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was enacted. For more information about this amendment to bankruptcy law, see the American Bankruptcy Institute analysis of the Bankruptcy Reform Act. For more information about bankruptcy, see the U.S. Federal Trade Commission's publication Before You File for Personal Bankruptcy. Also read the Bankrate.com article 12 Myths About Bankruptcy.

Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.

For more information on personal finance, or debt consolidation, search the CareOne Credit Knowledge Center Articles.

To learn about our Debt Management service, see the CareOne Credit Quick Answer Guide.

• Understanding APR – Simply comparing interest rates won't tell you how much the true cost of the credit is. Part of good debt management is comparing apples to apples; looking at APR (Annual Percentage Rate) is the way to do this. Learning how to calculate APR can help you make smart decisions on the type of credit to accept if you are building or repairing your credit.
  
  
• Bankruptcy- Is it Time to File? If your finances seem out of control and you aren't sure how you'll manage, you may start thinking about filing for bankruptcy. Before you begin the process there are some crucial points to consider.
  
  
• Take the Guesswork Out of Your Debt-to-Income Ratio – Ever find yourself wondering about the many tools creditors use to evaluate your credit worthiness? Understand your Debt-to-Income Ratio and you can see where you fit