An impending bankruptcy can give any person nightmares. Once you file for bankruptcy, your credit score is bound to take a nose dive. That's why, all financial consultants emphasize that it is better to avoid it, even if it costs much more, than to be declared bankrupt. If you are someone who is in major financial crisis, then the first thing that you should do is to make a list of all your debts and bills as well as your monthly income from all sources. Once you know how much you owe and how much money you have to waive the debt off, you are in a better position. Suggested below are some effective tips for avoiding bankruptcy. Make Priority Payments It is always better that you pay those debts first on which the interest rate is higher. So, with whatever income you have, start paying the debts with the highest rate of interest first. However, if there is a debt of very small amount which can be paid off in one or two installments, you can consider paying it first too. Cut on Expenses and Increase Income If you are spending on some things which are not a necessity such as a cable connection or a land line phone, it is recommended that you cut down on those expenses. Also, increase your sources of income. Take a part-time job or start a side business so that you have enough money to pay your debts. Sell Assets Sell the assets that you own. So, if you have some valuable furniture or jewelry or anything, which you can do without temporarily, consider selling them to your friends, relatives, or you can even sell them online through websites such as e-bay. The proceeds from the sale can be used to pay off your debt and thus it will help you greatly. Borrow from Friends/Family If you have some really close friends and family, who are willing to help you out of this financial situation, you can ask them for a loan. However, while borrowing money from them, make sure you have a plan in place to repay them, once you are out of this financial rut. Negotiate with Creditors Negotiate with your creditors, be it credit card companies or banks or private lenders. Inform your creditors that you are facing a financial crunch and thus, will be unable to repay the debt at the current rate of interest. You can request for a lowering of the interest rate and you can even ask them to reduce your monthly payments. Most of the lenders, including banks and credit card companies, would be ready to negotiate as they too would not like to lose the money you owe them. So, get in touch with the creditors and try to negotiate with them. Go in For a Debt Consolidation Program In short, a debt consolidation is a program through which all your debts are packaged together and their individual monthly bills are converted into one single monthly payment with a fixed rate of interest. This single monthly payment is paid to a debt relief company, who in turn will make payments to all your creditors on your behalf. All you have to do is to get in touch with a company which offers such services. They will look at your financial condition i.e. incomes and expenditures and suggest a consolidation plan accordingly. The debt relief company will negotiate with all your creditors on your behalf and may help you to get your interest rates, payments, late fees, etc., lowered. Besides this, you will not have to worry about how, when, and whom to pay every month as you will be making just a single payment. Take Help from Credit Counseling Agency Contact a credit counseling agency who will chart a debt management plan (DMP) for you. The agency will negotiate with your creditors on your behalf to reduce your monthly payments and interest rate on loan. Medical bills, student loans, credit card bills, and payday loans are all covered by the DMP. Now that you have enough information on bankruptcy alternatives, get your act together and start working on your debt settlement from today.