Most people think that filing for bankruptcy is an easy way out of debt. It is not. Some of the consequences of declaring bankruptcy include mandatory credit counseling and financial management education.
Even then, filing for bankruptcy doesn’t exempt you from evictions, lawsuits, and suspension of driver’s licenses when you have unpaid fines. What’s worse, you get a poor credit score which means you’ll be unable to borrow money at standard rates. The result, higher debts as your debt comes with a high interest rate.
The only option, don’t file for bankruptcy. Here are the top 5 Ways to Avoid Bankruptcy.
Have a Budget
Start by identifying your income and expenditure. Having a budget helps trim your spending habits.
But that’s not all! Look for ways to cut down on your expenditure. For instance, you may opt to make cash payments instead of credit cards.
Alternatively, you can downsize by:
- Moving to a smaller and cheaper house
- Driving an old, fuel-efficient vehicle
- Selling your recreational vehicle, boat, or motorcycle
- Skip that vacation trip.
If possible, eliminate all spending beyond the basics of clothing, food, and shelter.
Increase Your Income
As you minimize the costs, increase your income streams. But how? well, if you have a day job, consider taking a second or a third one. The same should apply to your spouse.
Alternatively, you can sell some of your stuff that you don’t need. Or even take in a roommate to your house.
Prioritize Your Debts
Most people make the mistake of not prioritizing how to clear their debts. Don’t make this mistake. instead, make a detailed plan on what you need to pay every month.
While at it, budget to start by paying absolute necessities like food, clothing, housing, transportation, and legal obligations like alimony and child support. Next, pay the debt that attracts the highest interest rates. After this, move to the next debt and so on.
If you’re in extreme financial distress, consider deferring the student loan repayment. But don’t forget about the loan, rather, start repaying immediately after the deferred period ends to avoid default or penalties.
Negotiate with Creditors
Reach out to your creditors immediately you realize you’re unable to meet the monthly loan obligations. While there is no guarantee, creditors may agree to reschedule your repayment plan especially when you’re considering declaring bankruptcy.
To them, some money is better than none at all. Making such negotiations may save you from becoming bankrupt.
It is important to stick to the negotiated agreement. Most creditors aren’t willing to negotiate twice on the same loan.
Seek the Right Professional Advice
When in trouble, look for the right breed of professionals to help you out. Even then, it is possible to fall prey to unscrupulous people masquerading as professionals. Most of these have sales pitches like, “pay me a given amount to help you escape your debts” don’t fall for their schemes and ploys.
And before you consider help remember the most practical counseling is: close your wallet and watch your space. However, you can still engage professionals for in-depth research.
No one gets into debt or bankruptcy like another. The same applies when getting out of debt.