With the ever-increasing rate of unemployment and many struggles through financial difficulties, bankruptcy might seem like the only way out. However, declaring bankruptcy can not only damage your credit, but it can affect future purchases and opportunities as well. If you are thinking to file for bankruptcy, think again! Here are six alternate ways to avoid bankruptcy.
If you have a huge credit card debt, the first thing to do is to talk to the creditors. They might seem like the enemy at that time when you are debating bankruptcy, but they can work with you if it means they will not lose all the wealth they lent you. Try to negotiate and see if lenders will reduce your interest rate and deduce a repayment plan. If you are making the minimum payments and going behind, make sure your creditors are ready to work with you to excuse a late payment without extending the deadline or penalty.
An alternative to high interest credit card debt is to refinance your home and take cash out. Since your mortgage is a secured debt, it has a lesser interest rate than most credit cards. With refinancing, you can use secured debt at a low interest rate to pay off the high interest unsecured debt.
The most significant element to maintain a healthy financial living is to live within your means, which means to spend less money than you earn. It might be difficult, but if you want to free yourself of debt, the best idea is to start sustainable spending habits now. You need to stop buying unnecessary stuff. Of course, it is tough to resist the desire to spend once you have developed a habit. The next time you decide to spend that extra $50, make a practice to think about how much value that thing adds to your everyday life. If it is not crucial, save the purchase for the time when you are financially ahead.
Make it your practice to save a large sum of money (the equivalent of at least four months’ salary) as an emergency fund. If you lose your job, this emergency fund will hold you over till you find a job. Even if you fail to find a job good enough within six months, the savings will still help overcome the loss of income.
Avoid making extravagant purchases. If you recently bought a new car and are having difficulty making payments, think about trading it in to get a cheaper car. While it is never easy to get rid of great things, it is more crucial to concentrate on becoming debt free and getting necessities paid for, such as your mortgage.
If you have a problem in budgeting, try getting rid of all your credit cards and go back to spending cash. Allow yourself a specific amount of money every week and spend only what is in your wallet. The best way to prevent over-spending is to spend simply only what you have on hand.