By Chloe Lowther

Are you worried about your financial situation? Perhaps you are considering taking cash out of your 401k to clear debt. Have you been thinking about bankruptcy? You may think that filing for bankruptcy is the easy way out of any debit problems you have. While Chapter 7 Liquidation or Chapter 13 reorganization can help and are often the best method for dealing with more debt than you can handle, they won’t cure your debt problems. Unless you learn how to manage your money you could end up in a similar position again. We want to avoid that happening.

First answer these questions as honestly as you can:

– Do you lose sleep at night worrying about how you will repay your debts?
– Do you borrow from one credit card to pay another?
– Are you having problems paying the minimum payments on your credit card debts?
– Are you arguing with your partner over your debts?
– Do you always run out of money before the month runs out?
– Do you know exactly how much you earn every month and what you spend your money on?
– Do you know how much you owe, to whom and the terms of each arrangement i.e. monthly payment, interest rate, remaining term of the loan etc.

If you have answered yes to three or more of the first questions and no to either of the last two you need help managing your credit card debt and your finances in general.

The first thing you need to do is draw up a budget. Anybody you meet with to discuss your finances will need a copy of this document so it makes sense to prepare it properly. It isn’t difficult. You can find a fairly standard format on Mint.com. You simply make a list of all of your income and your expenditure. Breaking down expenditure into fixed and variable monthly expenses will help as will prioritizing your bills. Priority bills including feeding your family and paying your mortgage need to be paid first.

Do not pay anything else until these are paid regardless of how loudly the debt collector shouts. Never agree to take money out of your 401k. Not only are you jeopardizing your future retirement but you may also incur a large tax penalty. There are much better ways to manage your financial situation and a lot of them can be done fairly easily and cheaply if you know where to get the best information.