Tuesday, August 14, 2012

Avoid Personal Bankruptcy

How To Avoid Personal Bankruptcy

It's an unfortunate truth in our society today, most people live beyond their means. They live off of credit which may work fine for a while, but the simplest thing such as an illness or job loss will completely push them over the edge financially. That has happened to many people during this current economic downturn. Even if it wasn't your fault that you got sick or lost your job, living off of credit will ruin your financial situation if you have to file for bankruptcy. In order to get your feet back under you financially, there are some things you can do to avoid personal bankruptcy.

The time to take control of your finances is right now. The longer you wait, the further out of control things will become. This isn't going to be a quick or easy thing to fix. You will likely have to face some less than pleasant truths about the way you handle your money.

For one thing, stop using credit. Period. You should cut up all of your cards expect one. Now I know that many people will say that that is bad advice since it will hurt your credit score. Yes, cutting up your credit cards will have a negative impact on your credit score, but for the short term, so what? If you're considering bankruptcy you're already in trouble and you really don't need more credit at this point anyway. Cut them up so you don't use them and make a bad situation even worse.

Next, take stock of your overall finances. If you take a long hard look at your spending habits you will probably find that you have one or more weak areas where you spend a lot of money. Once you figure out where your budget is bleeding, you can patch it up.

For example, let's say that once you sit down and take a long look at your spending habits you find that you are spending hundreds, or thousands, of dollars a month on eating out. Once you know that, you can adjust your lifestyle accordingly. No one is saying you shouldn't ever eat out again but you might be able to cut back and eat more dinners at home, or you might choose less expensive restaurants and / or meals.

Once you've found a weak area in your budget and you find a way to plug that hole, you will have a little extra money every month. The next step is to take that money and invest it in paying down a debt. Start with your lowest balance credit card first. Instead of only making minimum payments every month add the amount you saved on your budget to that credit card payment.

once you have that small card paid off, start on the nest larger one. Now you can not only apply the left over money from your budget to your monthly payment you can also add the amount you were paying on the first credit card that you just paid off. Just keep doing this over and over and before you know it you will have all your credit cards paid off.

You can use this same principle for paying off your car loans and mortgages too. This method will take time and a little bit of discipline, but it is something that anyone can do.

If you want to avoid personal bankruptcy you will have to take control of your spending. It's very easy to fall into bad habits, but you can recognize those bad habits and learn to make better choices. Good luck.

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