You can find yourself in overwhelming debt caused by several factors. These factors include medical expenses, business failure, job loss or reduction in hours, and similar circumstances. According to studies, American households have a combined debt of $14.64 trillion. These debts include student loans, mortgages, and credit card loans. If you are in deep debt, you might think bankruptcy is your only way out. Although bankruptcy seems viable, you should opt for it as the last option.
Filing for bankruptcy in California could have a devastating effect on your finances. Bankruptcy affects your credit score. It will also remain in your credit card report for up to ten years. Accessing credit facilities, including loans or a credit card, is a challenge if you have a poor credit score. Fortunately, you have other options you could pursue to help you avoid bankruptcy. Read on to understand these options in detail.
Do Not Overspend
Apart from unavoidable circumstances like medical emergencies, job loss, or business failure, overspending can easily cause bankruptcy. Therefore, the first step to protecting yourself from bankruptcy is to avoid overspending. But how do you know you are a chronic over spender? One sign that indicates you are an over spender is failing to follow your budget. You may follow your budget strictly for a few days at the beginning of the month, but you eventually spend more than you had budgeted. You make impulse purchases and end up buying commodities you do not need.
In most cases, you learn how to overspend. You may overspend as a result of emotional distress. Or your family upbringing or a way to fit in with your peers. You should learn what causes you to overspend. It is critical to check your behavior and make sure you do not overspend. You cannot prevent bankruptcy if you cannot control your spending.
Create A Budget
Although living within your means is a noble idea, doing so may be harder said than done. However, creating a budget will help you keep track of your expenses. You can create a budget simply by following some easy steps. You should start by creating a spreadsheet. You can create the sheet online, on your PC, or on paper. You should create two columns on the spreadsheet, one for expenses and the other for income. Under the income column, indicate how much you are earning each month. The money can be from your salary, side hustle, tips, or other income. Under the expenses column, indicate all your expenses. The expenses include mortgage or rent, utility bills, credit cards, student loans, or other expenses. Next, indicate your day-to-day expenses. These expenses include food, transportation, groceries, and other similar expenses.
Now compare the expenses column with the income column. If the amount on the expenses column is higher than on the income column, you need to prioritize your spending. You can either cut down on some expenditures or increase your income. Better still, you can reduce your expenses and increase your income. If you fail to balance your expenses and income, you are at a high risk of falling into deep debt, eventually leading to bankruptcy.
Increase Your Income
One of the best ways to avoid being crushed by your debts and falling into bankruptcy is to make more money. If you have extra income, you will have more money to pay off your debts. You can increase your income by applying for a second or even a third job. You may also encourage your spouse to find a second job. You may also work overtime to receive extra pay. Establishing a side business to generate extra cash is also viable.
Selling some extra stuff is also another feasible option to raise more cash. You could sell off any extra furniture, electronics, or jewelry. You can use the extra cash to settle some of your debts. Selling these items is relatively easy. You can use digital platforms including Craigslist, Facebook marketplace, Alibaba, or Amazon to sell this stuff. It is advisable to start reducing your debt as early as possible. If you do not take action now and wait too long, the debts will accumulate. Furthermore, the credit will continue to accrue interest. The increased interest rates will make it more difficult to dig yourself out of debt.
Reduce Your Expenditure by Cutting Down on Unnecessary Expenses
One of the main reasons you might have ended up in debt is spending more than you earn or make. Therefore, cutting down on your expenditure could help you repay some of your debts. You may also reduce expenditure by cutting down on unnecessary expenses. Some of the expenses you cut down on include cable TV, gym membership, and other similar unnecessary expenses. Eating out is also expensive. Therefore, you could decide to prepare your meals at home, which is much cheaper. Such measures will ensure you have more money to settle your debts.
If your financial position improves, you should develop a better financial plan. It is advisable to enlist the services of a professional financial planner or adviser. The adviser will help you plan your finances better and reduce your chances of falling into the debt trap again. The financial planner may advise you on how to pay your loan over a specified period. They will also help you identify areas where you can save more cash. If you do not have a budget, you must create one.
Agree With Your Creditors Concerning the Repayment Plan
Creditors are sometimes willing to come to an agreement on how you can settle your debts since it is in their best interest to recover the money. However, you have to inform the creditors of your financial predicament. It is critical to inform your creditors you have financial problems before they take drastic measures to collect their cash. Tell your creditors you are willing to pay off the debt and request them to reschedule your repayment plan. The creditors can increase the repayment period, reduce the repayment installment or do both. If they do so, you have more time and lower installments, making paying the loan easier.
Do Not Use Your Credit Cards
You should not be using a credit card if you are in deep debt and on the brink of bankruptcy. Although you might be tempted to keep a credit card for emergencies, having one will only increase your chances of falling into more debt. You should not wait for your financial situation to change before discarding your credit cards. You should stop using your credit card as you strive to recover from your debts.
Shopping online becomes easier and more convenient if your credit card is active. The situation becomes worse if you know the credit card number by heart. You should cancel your current credit cards if you know the card numbers. Discarding your credit cards will make it more difficult to do impulse buying. You should instead strive to use cash. You are less likely to make unwanted purchases when you buy stuff in cash since it is impossible to make payments online using cash. You should delete your credit card information if you have saved the information on the shopping sites.
Seek The Services Of A Consumer Credit Counselor
Handling debt on your own can be overwhelming. Seeking help from a professional may help. The counselor will offer advice and help you create a plan to repay your debts. The professional will help you develop a budget or may help you reach a workable repayment agreement with the people you owe money. In California, the law requires you to undergo credit management counseling before filing for bankruptcy. Therefore, seeking the help of a professional credit counselor is a far better alternative to filing for bankruptcy.
Under the renegotiated plan, you endeavor to clear your debt in a three to five-year period. Under the agreement, you work out more affordable monthly installments. Under the plan, you remit money to the credit counselor, who then distributes the money to your various creditors.
You May Consider Debt Settlement
Although settling your debt is not the best solution, it is still preferable to filing for bankruptcy. Debt settlement means you pay an acceptable percentage of the money you own. Once you pay this percentage, you have to pay the remainder of the debt as a lump sum. Although debt-relief companies exist, it is possible to arrive at a debt settlement agreement on your own. Some of the companies may advise you to fall back on payments so that they can negotiate an agreement. Doing so is unwise since you will negatively affect your credit score. It is better to continue making the payments on time.
You Can Seek Out A Home Equity Loan
Another alternative is to seek out a home equity loan. If you own your house, you can apply for a loan if the value of your house is more than the mortgage balance. You can then use this money to pay off your debts. Your banks may extend the loan even if the debts negatively affect your credit score. However, you must disclose you need the loan to pay off existing debts. It is advisable to consult a financial expert before applying for a home equity loan to pay off your debts.
Create A Plan To Prevent Yourself From Falling Into Deep Dept
You can fall into deep debt for a variety of reasons. Some of the reasons may be out of your control, while others may result from your financial behavior. Therefore, if you recover from debt, you should create a plan to prevent yourself from falling back into debt, leading to bankruptcy. One way to protect yourself from falling into bankruptcy again is to establish a savings fund. You should also check on any spending habits that may contribute to your financial woes and avoid making the same mistakes again. It is unfortunate if you have to go through bankruptcy multiple times because of repeating the same financial mistakes.
It is critical to stop accruing additional debt if you are serious about preventing bankruptcy. You need to be debt-free and remain debt-free. If you are an over spender, you need to exercise self-control to avoid buying stuff you do not need. If you exercise self-control, it is possible to stay out of bankruptcy.
Set Aside Money For Savings
Developing a saving culture will help you attain financial security. You can use your savings in case of an emergency, which could help you prevent bankruptcy. One of the best formulas to follow is the 50/30/20 rule. You should allocate 50% of your income to necessary expenses. These expenses include rent, utility bills, mortgages, and other essential bills. You should allocate 30% of your income to the fun stuff. This is where you allocate money for take-outs, a road trip, and other similar fun activities. Lastly, allocate 20% of your income to savings. Having an egg nest is critical as it cushions you from unexpected financial obligations like an injury, job loss, or business failure. The savings prevent you from falling into debt which might lead to bankruptcy. A financial expert will advise you on the best saving vehicle depending on your financial goals. You can set up a saving account for emergencies and an IRA account for long-term savings.
Call a Modesto Bankruptcy Attorney Near Me
It is critical to check your spending habits as uncontrolled spending can lead to financial difficulties, including bankruptcy. You need to find ways of making more money and spending less cash to recover from debt. You can even work with a credit counselor if the situation becomes overwhelming. Using these strategies will help you regain control of your finances and settle your debts without the court’s intervention. You will also avoid filing for bankruptcy which can hurt your finances and livelihood.
Your attorney will help you learn how bankruptcy works and guide you through the process if all the above measures fail and you decide to file for bankruptcy. At Modesto Bankruptcy Attorneys, we are a world-class bankruptcy firm helping clients prevent bankruptcy or file for bankruptcy. If you want any advice on preventing bankruptcy or filing for one, do not hesitate to contact us at 209-314-3010 to schedule your free consultation.
