Though many people find themselves on the brink of bankruptcy because of massive medical expenses or unexpected job loss, there are others who end up there because of reckless spending habits and a failure to plan for the future. It is all too common these days for folks to live well beyond their means, and for some, coming dangerously close to having to file for bankruptcy protection is just the wake-up call required in order to begin imposing some financial discipline. With that in mind, here are some steps that can help get things back on track and keep you out of bankruptcy court.
Budgeting And Belt-Tightening
A great first step on the road to financial wellness is to understand where your money goes every month. Begin by creating a solid budget plan that clearly illustrates what you are bringing in and where the bulk of your spending is happening.
The second thing that must be done is to start cutting back on expenditures. Put your credit cards in a drawer and use cash or debit cards for as many purchases as possible. Do not cancel those credit cards, however — doing so can have a negative impact on your credit standing by lowering your available credit and throw your utilization ratio out of balance.
Larger-scale strategies for cutting costs include moving to a smaller residence, driving a used vehicle, delaying vacation travel, or selling a motorcycle, boat, or other recreational item.
For smaller cuts, look to reduce spending on things such as groceries, dining out, cable television, nights at the bar, fancy coffee, gym memberships, and similar luxuries.
Make More Money
After you have done all you can to limit expenses, you need to look for ways to generate additional revenue. Getting a second job is an obvious choice; if your spouse doesn’t work, perhaps they can find a way to start bringing in another income stream. In the current gig economy, it’s not terribly difficult to find ways to make some extra spending money each month.
Another idea for bringing in extra funds is to start selling some of the excess belongings you have accumulated. If you have space, perhaps look into finding a paying roommate. Research whether or not you may be eligible to receive government assistance, unemployment compensation, or even forbearance on mortgage payments. While it may hurt your pride to accept that kind of help, if it prevents you from filing bankruptcy Chapter 7, it may be the smartest course of action.
Research Debt Consolidation And Settlement
A strategy of debt consolidation in which you pay off higher-interest debts with a single, more affordable loan may be a great way to avoid bankruptcy. While this is often a savvy technique for getting some financial breathing room, the key is to prevent yourself from falling back into bad habits. Do not start spending again just because you are no longer under such a massive burden of high-interest debt. Stay the course and pay things off without building obligations back up again.
In some circumstances, debt settlement might be an option. This is a scenario in which you work with individual creditors to negotiate outstanding balances downward. The concept involves you paying a percentage of what is owed immediately in exchange for the rest of the debt being forgiven. You might be surprised how many creditors are willing to enter into such an agreement, particularly if they are worried they would get virtually nothing out of you in the event of a bankruptcy filing.
Consult With Professionals
If you find yourself sinking further and further into financial trouble, consider consulting with an expert, but be careful about those with whom you do business. Do not fall victim to quick-fix credit repair programs that seem too good to be true. The fact is that you really can solve many of your financial issues on your own by following the simple, yet effective advice of cutting spending while also earning more income.
Lasting Changes
The reasons for a bankruptcy filing may be beyond your control, but there are usually others for which you rightly should accept blame. By conducting an honest assessment of what went wrong, you’ll be well-positioned to make the type of lifestyle adjustments necessary to prevent a repeat scenario in the future. A great first step toward building financial security is to start amassing a sizable emergency fund on which you can fall back in times of trouble.
Take note of the behavioral and emotional habits that took you down a dangerous financial path and consciously eliminate them from your life. The last thing you want is to become a serial filer who uses the bankruptcy process as a way to spend, get out of debt, and then spend again.
To obtain any real sense of financial security, they key is to extricate yourself from excess debt and vow not to return to it. By imposing limits on yourself and sticking to a plan, you can steer clear of bankruptcy and create a truly prosperous tomorrow.
Photo Credit: ralph and jenny
