How to Avoid Bankruptcy

Written by jessica Alba

Sometimes, bankruptcy is unavoidable. Serious illness can decimate a budget in absolutely no time at all. Job loss, or even a cutback in hours, can send families literally packing, in order to find a way to have the basic necessities of life. However, if you still have a job and you are not racking up medical bills, you need to learn how to avoid bankruptcy, before your life is turned upside down.

Although some of the suggestions seem simple, for many these ideas may be very difficult to implement. But, it might just save a lot of heartache at a later date. Eventually, it will not seem like a sacrifice. It will simply be a matter of habit.

Live within your Means

One of the hardest things for many people to accomplish is living within their means. In a society governed by instant gratification, a lot of individuals have no concept of saving for an item. For example, if they want a new television set, no problem. Buying on time is easy. All you have to do is grab that little piece of plastic out of your wallet, plunk it down on the counter, and have that big box put into your car.

Wrong! If you do not have the money, do not spend it. Even if you do have the cash in the bank, is it supposed to be for rent, groceries, car payment, or some other financial obligation? Stop! If you are going to need the money to pay a bill or buy your food, you need to exercise restraint and live within your means

Priorities

If you want to avoid bankruptcy, should times get tough, you need to set your priorities today. You must manage your money according to your needs, not your wants. For example, you have basic survival needs. A roof over your head, food on your table, and a way to get to your place of employment are paramount.

So, when you receive your paycheck, make sure you have the money for your rent, your food, and your car payment first. Of course, that does not mean your grocery budget should include expensive items such as steak and lobster. Instead, shop smart. Use coupons; purchase no name brands; forget the snacks, sodas and other non-essential items. Live frugally.

Then, pay your other monthly bills. Only after all of your financial obligations are met, should you spend whatever money is left on your wants. In fact, if you are really smart, you will put money aside in savings, no matter how small the amount. If possible, you should have some sort of nest egg, should you have unexpected expenses, need to find a new job, or pay medical bills.

Cut up those Cards

Ouch! For many people, the idea of cutting up the credit cards is almost unbearable. Fine. If you cannot do it, give the cards and a pair of scissors to your kids, a friend, or a relative. They will have no problem helping you to avoid credit card debt.

One of the major reasons people are now hiring a bankruptcy lawyer and going to bankruptcy court are those little pieces of plastic in their pockets. At the time you really want something, it seems like free money-until the bill comes.

If you do not have it, you cannot spend it. It may seem cruel to cut them up now. But, if economic times continue to deteriorate, you will not be among the millions of people wondering how you are going to pay off a stack of credit card bills.

Fixed Rate Loans

Should you be considering the purchase of a home, make sure it is a fixed rate loan. It may require more down or a higher house payment in the beginning. But, many people who are now in bankruptcy had an adjustable rate mortgage.

When it comes time for the payment to adjust, the homeowner simply cannot make the new payment. In some cases, the monthly obligation doubled or went up by at least 50%. Then, it is only a matter of months before foreclosure proceedings or filing for bankruptcy are the only options left.

If you want to know how to avoid bankruptcy in these iffy economic times, you now have four ideas to get you started on the road to healthier finances. Do not assume that bad things will always happen to the other guy. Start living within your means today. Set your financial priorities, make it impossible to incur more credit card debt, and make sure your house payment is not going to skyrocket on you in the future. Basically, it is up to you. No one else can control your finances for you. Be prepared for a rainy day, and maybe you will be able to avoid bankruptcy even in lean economic times.