Personal Financial Management

How to Prevent Bankruptcy

Many people find it easy to enjoy a lifestyle that is beyond their means. They often struggle from paycheck to paycheck, barely getting by, or, as often, slowly slipping into financial ruin. An unexpected job loss or investment crisis causes them to be unable to financially recover. Before too long, they realize that bankruptcy is a viable option.

The easiest time to prevent bankruptcy is before you are at risk of going bankrupt. The second easiest point to recovery financially is as soon as you realize you are having financial problems.

Avoiding Bankruptcy Steps

Live Within Your Financial Means. Don’t spend what you don’t have. Make do with what you do have. I know this sounds simple, but it isn’t always easy to save money. It is always easy to spend money, but you already knew that. If you have to spend money, learn how to spend less money. The sooner you create good budgeting habit, the better off financially you will be. A common example today is home ownership. People not only want a home they own, but they want the best home they can buy. Sometimes this causes them to stretch themselves financially until the point where even a brief monetary problem causes major problems. Another example is buying a car. Can you get by with your existing car for an extra year or two? Especially if your car is fully paid off. This can remove monthly payments for you and, hopefully, allow you to save. There are many online sites where you can learn to save money. You can even save money when buying a tombstone.

Waste Not – Want Not. Use what you have and sell what you don’t need; or can’t afford. For many people with financial problems the fastest way to control your expenses is to sell expensive items. This usually means your car, and for some can mean a boat or RV. Even if you have to take a loss on your sale, by removing the monthly cash payment burden you can get back to financial sanity, as well as mental sanity. For the little stuff, have a yard sale, use craigslist or auction things on eBay.

Have a Solid Financial Plan. It always takes longer to fix money problems than it takes to create money problems. Determine where you can immediately reduce expenses (expensive wine, restaurants, movies out, coffee) and apply that same frugal mindset to everything you can. Work on lowering utility costs at home, shop around for a better telephone plan and examine different credit cards (better yet, remove those you don’t need).

Be Proactive – Contact Your Creditors. If you find yourself slipping down the financial wormhole, call your creditors while you still have a chance to make things work. You don’t like your situation, and your creditor doesn’t like it either. Your bank doesn’t want to take a financial hit. And they know if you enter bankruptcy, they are going to lose money as well. The FTC offers free information on credit repair.

Seek Financial Counselling. Find a reputable consumer credit counseling agency. These credit agencies are experts at navigating the financial mine fields. They will be able to help you reduce your payments or rates with creditors. The FTC offers helpful information on what to do before you file for personal bankruptcy.

Close Your Credit Card Accounts. Be aware that this often may negatively affect your credit score. If you are fearful of this, simply lock up your credit cards in a box and throw away the key. If you have to get into the box, you have to cut the lock, and it is such a hassle…

Start Saving. I know this is tough, but you need to start saving. It begins as a small habit. Try saving your change and then instead of spending it, roll it up, and open a savings account, with out a debit card. Make it hard to get at your money. Put away a small amount from each paycheck even if it’s only $5 or $20, it will add up.