Bankruptcy filings have hit a record high of half a million in the past two years, but that doesn’t mean it’s the only option for those with overwhelming debt.
Before you consider bankruptcy, take a hard look at your financial habits. You may be able to change them so that bankruptcy isn’t a likely option.
1. Create a Budget
Whether you’re struggling to manage debt or just want to get your finances in order, creating a budget is a great place to start. It can help you keep track of your spending and identify areas where you might need to make cuts.
Start by listing your fixed expenses, which are the bills you don’t change from month to month, such as rent or mortgage payments and utilities. Next, list your variable expenses, which vary from month to month and may include groceries, gas, entertainment and more.
Once you’ve compiled all your expenses, calculate a monthly estimate for each one. It’s important to know how much you need to spend on each category, so you can budget accordingly.
You’ll also need to set financial goals for the short and long term. This helps you motivate yourself to make the necessary changes in your spending and saving habits that will eventually lead to a more stable financial future.
2. Cut Your Spending
When your debt is threatening to cause you serious financial problems, you may want to start cutting your spending. This may seem difficult or even impossible, but it can help you manage your debt and reduce your chance of bankruptcy.
One of the easiest ways to cut your spending is to make a budget. This will help you identify where your money is going and how much is available for discretionary spending.
Once you’ve done this, you can determine how much is left over for saving and paying off debts. You can use a budgeting app or spreadsheet, a notebook, or even just a pen and paper to keep track of your spending.
Another way to cut your spending is to create a budget that excludes things you don’t need, like cable TV or gym memberships. By excluding these items, you can free up cash that can be used to pay off debts or save for future emergencies.
3. Negotiate with Creditors
Negotiating with creditors can be a successful tactic to reduce payment amounts and overall debt. However, it is not something that should be handled alone.
You need to be a resourceful problem solver, optimistic and cooperative when negotiating with creditors. Keep your story truthful, specific and brief so they can understand where you are coming from and why you are unable to pay off the full balance. Hiring a professional lawyer could be beneficial when it comes to creditors. Go to websites such as https://www.ljacobsonlaw.com/pa/harrisburg-bankruptcy-attorney/ for more information.
You can negotiate with creditors directly on your own, or hire a debt relief attorney to help you. But you must be prepared for a long process that can take months to resolve.
4. Consider Debt Consolidation
Debt consolidation is a method of combining your credit card, medical and other debts into one loan. It can help you streamline your monthly payments and pay off more of your debt faster.
It also reduces or eliminates interest charges, making it more affordable to repay your debts. But before you consider debt consolidation, you should take a close look at your finances and determine if it makes sense for you.
If you’re able to consolidate your debt, it is a good idea to start paying off the balances with the highest interest rates first, as this can save you the most money in interest payments. There are also strategies you can use to pay off debts faster, such as the snowball and avalanche methods.
However, be aware that debt consolidation does not remove underlying financial habits that led to your current debts. This means it’s not an effective way to overcome your financial struggles if you haven’t made any other changes in your spending or budgeting habits.