‘Bankruptcy’ is a scary word. It means your finances have run dry, and your ability to repay debt is reduced to zero. Filing for bankruptcy may seem degrading and humiliating, but for some people, it is the only solution to their current life situation. Make sure you don’t become one of those people and take action before it’s too late. While filing for bankruptcy can sound like an easy escape from debt, in reality, it isn’t. It can badly impact your credit score and your life in general. If you’re drowning in financial hardships right now, ‘learn to swim’ by following the five steps listed in this article.
Take control of your finances
Taking control of your finances can sound like an easy-peasy thing to do. Still, if you’re on the edge of bankruptcy, you definitely have room for improvement when it comes to your financial skills. The first thing you need to do is to write down all expenses. This will allow you to get a clearer view of the areas where you can make some budget adjustments. The next thing is to cut all unnecessary spending. You will need to switch to a more humble lifestyle, so all expenses beyond food, shelter, clothing and transportation should be eliminated. Things like a gym membership, TV subscriptions or alcohol are little luxuries you would need to give up on until you get back on your feet again. To prevent yourself from increasing debt on your credit card, try paying only in cash. However, it may not be the best idea to cancel your credit cards, because this will be bad for your credit rating.
Gather as much money as possible
If you have minimised the expenses, and still don’t have enough money to cover debts and bills, it’s time to increase your income. Desperate times call for desperate measures, so prepare yourself for some unpleasant things. If your job is not providing you with enough money, you will seriously need to consider taking a second job or at least some side gigs. Selling stuff you don’t need can also be a good way to pay off your debts or at least a part of them. For example, if you have an expensive car, you can sell it and buy a cheaper one. Also, if you want to lower your living expenses, it may be a good idea to get a roommate. All of this may sound crazy, but you need to act forcefully if you want to avoid filing for bankruptcy.
Consider debt-reducing strategies
When your budget simply doesn’t suffice no matter what you do, there are ways still to improve your situation. For example, you can apply for a debt consolidation loan. Essentially, it is a low-interest loan given by a bank or a credit union, which combines all your higher-interest debts into a single liability. It is an easier way both for you to break free from debt, and for loan givers to collect your money. If you don’t qualify for a debt consolidation loan, you can consider a debt settlement strategy. It consists of renegotiating the terms of loan repayment with the creditors and paying a percentage of the total loan at once. The rest will be forgiven. Creditors often settle with this solution because this way they will get at least a part of the loan back, while a bankrupt customer would just stop paying whatsoever. If it’s done properly, it may get you out of debt by paying a significantly smaller sum of money. Beware of the risks of this strategy, as well as the scammers that introduce themselves as debt settlement companies. Failing to settle or falling for a scam will just make your situation worse.
Ask for professional help
Although filing for bankruptcy may seem to have some advantages, it reflects badly on the credit score. You will be far less likely to qualify for another loan, and the loans you do get will have high-interest rates. Additionally, you could still face lawsuits or eviction from your residence. Your driver’s licence can also be suspended if you have unpaid fines. Your position is especially hard if you have a failing business, as it will drag you to the rock bottom fast. That’s why it may be best to avoid filing for bankruptcy and put some effort into resolving your problems in a different way. Your best bet is to seek professional help. Whether it is credit counselling or help with debt settlement, you will have higher chances of succeeding than fighting on your own. You can hire an accountant to ensure your taxes are paid on time and avoid legal actions against yourself. Tax Accounting Group will help any struggling entrepreneur in Sydney.
Make a permanent change
There are numerous reasons why you can find yourself facing bankruptcy, and not all of them are your fault. As the pandemic has shown to us, life can change in a split second. You may get sick and end up in a hospital with huge medical bills or you may simply get fired from your job. Having an emergency fund or savings can be one of the ways to protect yourself from bankruptcy or having to rely on loans in situations like that. The emergency fund should be big enough to cover your expenses such as rent, groceries and gas for at least three months. If you are aware of your excessive spending habits, try to change them before it’s too late. Always carefully plan the purchase and never go to the grocery store or a mall without making a shopping list first. If you can, try to avoid at all costs paying full price for things. Install apps in order to track discounts, holiday sales and coupons from your favourite stores. Also, check out these basic financial management tips for individuals and businesses to help you meet your financial goals.
In capitalism, anyone can become a victim of sudden and drastic changes in material well-being. We all have equal chances of unexpected things happening, that could leave us struggling. For that reason, we should all learn as much as we can about how we can overcome hardships and stay afloat, without the need to file for bankruptcy.