Steps to Avoid Bankruptcy

A bankruptcy usually starts when the debtor files a petition in the bankruptcy court. Read about “Steps to Avoid Bankruptcy”

Introduction

An easy and more effective alternative to deal with your debt is a Bankruptcy. It might be sounding cool to be free from paying debt at times but this affects negatively your credit files for future use. Bankruptcy, a well-known term, is a legal process used for the people or, more appropriately, by the consumer who is unable to repay his/her debts to creditors and might get relaxation at some or all of their debts. Most of the time, bankruptcy is ordered by a court that is often started as a petition by the debtor. If consumers complete bankruptcy processes, that will help them to get rid of debt or making a plan to repay debts as well. 

A bankruptcy usually starts when the debtor files a petition in the bankruptcy court which can be filed by an individual, by spouses, or by a corporation or any other organization. Whoever files the petition, person will get through the debts for now but in future, they will not be considered for loans or other relevant services due to their negative rapport with debt paying. Bankruptcy is a threat to banks or your creditor as they will not, or will receive late the credits.

READ ALSO: How to Pay Off Debt?

Most of the bankruptcies are usually due to unforeseen emergencies and some of the common reasons for payment problems are medical expenses, layoffs, divorce, and most of the time overspending, but there are a few easy and simple things that can help to avoid bankruptcy.

Do not accumulate on high-interest credit cards. 

This is the most common and number one cause of personal bankruptcy. As a credit card is a 21% loan so they can be proven very dangerous. In many credit card advertisements, they tell that it is smart money that sounds cool to the target audience. But as to prevent bankruptcy, it is much crucial to avoid high-interest credit cards.

Know your flow. 

That can be a second and very important step to take a record of money every month. To understand and know and understand every month coming and going or spending money. As many people make the mistake of negative cash flow for a long period, and the result is that suddenly it gathers up to $30,000 or $40,000 on their credit cards. So, it is very necessary to check their income and spending after fixed time intervals that will surely help to avoid bankruptcy. The most recommended way to do this is making your monthly budget even if you have irregular income flow throughout.

Don’t spend too much money on housing.

The third important piece of advice for the people is that they should not spend more than one-third of their take-home pay on housing. As it is often seen that people are spending about 50-60% not only that sometimes even 70% of their take-home pay on housing and that is too much. They should avoid it and find other effective alternatives online or DIY.

READ ALSO: How Does Leasing a Car Work?

Don’t spend too much on transportation. 

People need a pretty good car, and experts recommended that about 20% of your take-home pay can be spent on this, but it has been seen that people are spending $500 and $700, even $1,000 car payments. If people spend that much money on transportation, that will make them bankrupt, so it is the demand of the wisdom not to spend that much amount of money just on transportation. Walk for little distance such as to the super store, nearby school, or any other distance you can travel by foot within 15 to 30 minutes by considering your health conditions. Drive with care if you have your cars/bike to reduce maintenance cost considerably.

Keep your overhead low. 

Some people’s lifestyle is to make and spend, make and spend. But the wisdom is that they should keep everything in a reasonable fraction to their income and try to stay away from financing household items which is very unnecessary for those who are predisposed to bankruptcy. So, it will be in their favour to spend on the thing that deserves that spending. the key is to change the ill attitude.

READ ALSO: Reasons People Stay in Debt – Why You Can’t Escape Easily?

Create two types of savings. 

This can be very beneficial for people. The first type is six months of overhead, and the other type is long-term savings for retirement. So, it is worth it to start saving money for the future. That will not only help you to collect money but also there is some peace of safe future also. It can make you remain free from worries of debt. These savings can be spent on investments at first to utilize that income for debt paying.

Act fast if you lose your job. 

This is the most faced uncertainty by people, but if something happens to your job, then don’t be panic and try to recover from it by taking your time. But after that, you can get back into your routine. It is a famous saying that if you have your job as inly source of income than you are just a step away from being poor. And we all know, you will not be paying debt as poor. 

If people remain out of the market for a long period, then it will become very hard for them to adjust again to that previous level. So come back to work on time, so your debt will not accumulate.

Don’t guarantee loans for others.

This is the most done mistake by the people who guarantee loans for others, and in the end, they are made responsible for all debt. So many times, their children want their guarantee for a loan for a car or business if there is an accident or loss in a business so it will come to the parents, which is very unauthentic to guarantee loans for anybody not even your significant others.

Always consider “what if?”

 That is very important for any person to consider that what if his income stream goes away? What if his business dries up? What if he became incapacitated? What if he goes berserk? So, people should consider the appropriate types of insurance packages available. It may not be good to set up all the insurance, and it’s costly. But it can just make sense that people have at least an idea about any kind of uncertainty that can happen to them at any time in the future, so by plans, they can get prepared for it.

Spend some time every day with some successful literature. 

To put something good in your brain for 10 or 20 minutes a day is a very healthy activity with good psychological effects. As all the day we talk to people and day to day life usually we get negative comments or gestures things. People often get from people “You can’t do this; you should do that” or from advisers: “You need to buy this; you need this credit card.” So, if people practice by putting in something positive, they will surely see the benefits in the long term.

READ ALSO: How to Take Control of Your Finances in a Recession?

Conclusion

By concluding the article, it is necessary to keep in mind one thing that bankruptcy is not an easy thing as it seems. It is crucial to stay away from it, but sometimes it is necessary to take debt that can cause bankruptcy. As discussed above, the ten important steps prove to avoid bankruptcy if implemented in a right way.

An alternative option to bankruptcy is to consolidate your debt. For this process, the first step is to qualify for the debt consolidation loan. Then at the second step, you will be able to obtain a “good” interest rate, and that interest may be tax-deductible, but the length of time to repay is considerable and should be kept in mind. Thus to avoid bankruptcy is very hard but making wise decisions can give you comfort at present rather than future worries ahead. Hope you love reading about “Steps to Avoid Bankruptcy”

Please share “Steps to Avoid Bankruptcy – Ultimate Guide About Saving Yourself” with friends and family.