Everyone hopes they will never have to face the problem of filing for bankruptcy. It is a big decision and can hurt someone financially for an exceptionally long time. If you are in a situation and considering bankruptcy, you should know that there are many other options to try before taking the final plunge. If you are afraid that you might head in that direction, there are quite a few things you can do to change your situation.
In a situation when you are considering bankruptcy, you might want to take a look at your expenditures. Marking differences between needs and luxuries will help a lot in understanding how much you can cut down on your spending. In today’s world, where purchases through credit cards are rampant, and other loans such as mortgages, rents, and significant investments are standard, one can easily spend way more than they are earning. You may also be paying a lot of discretionary expenses, such as having a premium service for something you can get for less or even free.
Establishing a proper budget and bookkeeping to calculate your income to expense ratio will allow you to see the things you can exclude from your expenses. One of the first things you should look at is subscription or membership services that you don’t use very often. For example, gym/pool memberships. If matters are critical, consider canceling the services that you identify as a luxury. You’d be surprised by how much you can save with just a few changes. Better yet, they might be able to help you delay your decision in filing for bankruptcy.
Do Not Accumulate More Debt
This advice is crucial in avoiding bankruptcy. It would help if you stopped spending beyond your means. Stop using credit cards as doing so will help a lot in getting back on track financially. Your primary focus should be on paying off your credit card bills as soon as possible to avoid building up interest.
Avoid applying for any loans such as home equity or car loan, which may cause your credit score to drop, which can worsen your financial situation. If you must take out a loan, consider checking your credit score before making the decision. Prioritizing the repayment of loans and debt in your budget is vital. Make a plan that will help you repay your loans quickly so that you don’t get burdened by higher interest fees.
Increase your Income
This increase might not be possible for many people, but squeezing in a weekend or part-time side job can help a lot in streamlining cash flow. The extra cash can go towards the repayment of debt. Freelancing is pretty trendy these days and, if you have the skills, you can make money to put towards solving your financial issues. Other side jobs, such as waiting tables or driving your car with Uber, can also help you out.
Try Negotiating with your Creditors
Reach a compromise with your creditors on the repayment plan for your debt. Extending the date of maturity or restructuring the entire payment plan altogether can help you get out of the financial crisis that you are facing. Try reaching an agreement before consulting a bankruptcy lawyer. Once you do reach an agreement, however, get it in writing to be on the safe side if the creditor acquiesces.
Get Professional Help
Consult multiple legal and financial professionals before filing for bankruptcy. At a bare minimum, consult a debt relief attorney alongside a bankruptcy attorney to get the entire picture. Speak to your accountant or bookkeeper to get an even clearer idea. These professionals might also help you find other ways to get out of debt and weigh the advantages and disadvantages of each decision.
Create an Emergency Fund
If you have solved your bankruptcy dilemma, this is the best time to invest in a savings account or emergency fund. Both of these will be able to help you in case you run into any financial issue in the future.
Keep the repayment of loans prioritized until you have eliminated them and try not to get new loans that can hurt your credit rating or financial situation. Continue saving up for times when you might be very much in need of money.