One of the worst financial situations you can have in life is bankruptcy. For many, it may be the only option left but it totally ruins the credit score. Of course, there are methods to improve the credit afterward but it means building it from scratch again.
Why is Bankruptcy Becoming a Common Problem?
People own too many credit cards and use them excessively. Furthermore, there is the habit people have developed of demanding things instantly. Therefore, it is not surprising that many people are living with debt.
In some cases, this debt can become an overwhelming burden. Individuals will reach a point where there is no chance they can pay off their mounting debts. As a last resort, many will choose to file bankruptcy.
The proactive approach to prevent piling debts is to manage your finances well. If you do not trust yourself to achieve that, you can invest a little money to hire a financial advisor.
Meanwhile, here are 6 tips you can try to avoid bankruptcy
1. Keep Track of Your Debt
Again, we cannot emphasize the importance of a proactive approach enough times. It is okay to have debt. What is not okay is to delay its management. Before you reach the point of no return, all you have to do is take some time out and calculate the debt and in how long you can pay it. If you start earlier, it is very possible that you can gradually get rid of it over a short amount of time.
Once you know what you owe and what you own, you can make a budget. Try to discipline your expenses by following the decided plan. With this approach, you will be able to significantly reduce your debts.
2. Adjust Your Lifestyle
In today’s world, it is very easy to be tempted and have access to all the luxuries. It is totally okay to indulge from time to time. However, if you start living the high life despite your earnings not allowing it, then you are doomed to a financial crisis.
The best step is to adjust your lifestyle according to your means. To be honest, it is not that difficult to live comfortably even with average means given.
In addition, many of us are prone to facilities that we do not actually need. For example, why live in an incredibly spacious apartment when you can easily get by in a smaller one. Similarly, you can cut down many other expenses.
3. Liquidate the Assets
It is common for people to own stuff they do not actually need or at least, it is not an immediate need. If you can predict your debts mounting, you should decide to sell a few of your assets. Even after filing bankruptcy, your assets are likely to be liquidated in order to cover the debts. It is better to manage them yourself before you reach that point.
The question is what you can sell. The jewelry and electronics can get you a good value on the market. Even certain pieces of furniture can sell well enough to cover a few of your debts.
4. Increase Your Income
For some, cutting down expenses may not make much difference. The reason is that their income remains constant. This is not easy to accomplish but increasing your revenue can help you overcome future financial challenges.
To increase income, try the following:
- Take a part-time job
- Get a roommate who pays
- Take on small and paid projects that can be finished in a few weeks or months
If you are married and it is possible, ask your spouse to take a second job as well. After all, you may have shared debts and possessions. The bankruptcy will affect you both.
5. Help from Creditors
Your credit card company may be able to pull you out from a difficult situation. Give them a call and inform them about your financial struggle. They might offer you the option of lowering the monthly payments and reducing the interest rate too. However, if you choose this method, you have to be careful about being responsible.
6. Help from Friends and Family
When your debt situation is still under control but you can see it that getting out of hand soon, you still have time to get out of the situation. If you think there is no other way you can help yourself financially, you should turn to family and friends. After all, they are supposed to support you in difficult times. Although, don’t take advantage of their kindness. Use their support to manage your immediate debts and pay them back as soon as you can.
Avoiding bankruptcy is possible if you learn to manage your finances well from the beginning.