Before we start today's topic about how to avoid personal bankruptcy, let's understand that It's an unfortunate truth in our society today that most people live beyond their means. They live off credit, which may work fine for a while, but the simplest thing, such as an illness or job loss, will ultimately push them over the edge financially.
That has happened to many people during an economic downturn. Even if it wasn't your fault that you got sick or lost your job, living off of credit will ruin your financial situation if you have to file for bankruptcy.
There are several steps you may take to get your financial life back on track and prevent personal bankruptcy.How to Avoid Personal Bankruptcy
The time to take control of your finances is right now. The longer you wait, the further out of control things will become. It isn't going to be a quick or easy thing to fix. You will likely have to face some less than pleasant truths about how you handle your money.
For one thing, stop using credit for some period. It would be best to cut up all of your cards, except one. Many people will say that that is terrible advice since it will hurt your credit score. Yes, cutting up your credit cards will harm your credit score, but for the short term, so what? If you're considering bankruptcy, you're already in trouble and don't need more credit. Cut them up, so you don't use them, making a bad situation worse.
Next, take stock of your overall finances. If you take a long hard look at your spending habits, you will probably find that you have one or more weak areas where you spend a lot of money. Once you figure out where your budget is bleeding, you can patch it up.
For example, let's say that once you sit down and take a long look at your spending habits, you find that you are spending hundreds, or thousands, of dollars a month on eating out. Once you know that, you can adjust your lifestyle accordingly. No one is saying you shouldn't ever eat out again, but you might be able to cut back and eat more dinners at home or choose less expensive restaurants and meals.
Once you've found a weak area in your budget and find a way to plug that hole, you will have a bit extra monthly money. The next step is to invest that money in paying down debt. Start with your lowest balance credit card first. Instead of only making minimum monthly payments, add the amount you saved on your budget to that credit card payment.
Once you have that small card paid off, start on the next larger one. Now you can not only apply for the leftover money from your budget to your monthly payment, but you can also add the amount you were paying on the first credit card you just paid off. Keep doing this repeatedly; before you know it, it will pay off your credit cards.
You can also repay your car loans and mortgages using this same principle. This method will take time and a little discipline, but it is something anyone can do.
Look for other ways to increase your income or decrease your spending
Here are different ways to help avoid personal bankruptcy:
- Get a second job. Try a side gig like driving a taxi.
- Move! You may be able to find a less expensive place to live
If you want to avoid personal bankruptcy, you must take control of your spending. It's straightforward to fall into bad habits, but you can recognize them and learn to make better choices. Good luck.