In this blog post, I started to address a few of the ways that an individual can avoid having to file for bankruptcy. Bankruptcy should truly be viewed as a last resort; the long term consequences of filing for bankruptcy can be paralyzing. In this blog post, I will cover a few more basic tips to keep your finances healthy, and avoid traveling down the (usually avoidable) path to bankruptcy.
Start an Emergency Fund
While this may not be possible if you are already deeply in debt, it is a great preventative measure. This emergency fund should be several months worth of salary that you save over time. In the event that a person disaster takes place (loss of a job or medical emergency), you will be able to continue to function financially for a few months and avoid immediate thoughts of bankruptcy.
Work To Rid Yourself of High Interest/Unsecured Debt
If a majority of your debt is on credit cards, it is likely that a large portion of the money you owe carries a very high interest rate, and is what we call unsecured debt. (Unsecured debt is debt that does not pertain to an asset or specific property – ie: a car, house, etc.) If possible, refinance your secured debt to rid yourself of the unsecured debt. Work with your lenders to refinance your mortgage and get a cash out to pay off the unsecured, volatile debt. The refinancing will allow you to take on debt at a lower, more manageable interest rate.
Maximize Your Income
If you have already worked to minimize your spending across the board, and it is not feeling like it is manageable, it may be time to take on a second job. If you have a capable spouse who is currently not working, they should also begin to seek employment. Any increased income that can be had will help make your situation a little better.
The reality is that the process of preventing bankruptcy is never an easy one, unfortunately you may be looking at making a lot of decisions that do not align with your current lifestyle. But, if you are actively thinking about bankruptcy, that does mean that your finances are in trouble, and a personal sacrifices now will ultimately make your life easier down the road.