In 2018, the American debt hit $13 trillion. On average, each American took more than $38,00 in debt – excluding home mortgages. For many people, debt is their way of life, especially those living from paycheck to paycheck.
And if you’re consumed by debt, chapter 7 or Chapter 13 bankruptcy is an option. For chapter 7, it wipes out the eligible debt while Chapter 13 reduces the debt and allows bankruptcy filers to make a monthly payment to offset their debts.
However, bankruptcy is not a good option. It spoils your credit score thus denying you an opportunity to access credit in the future. Therefore, one needs to take necessary measures to avoid falling bankrupt.
Here are the Top 10 Ways to Avoid Bankruptcy
Table of Contents
Reduce Your Expenses
When in debt, the primary goal should be dedicating as much money as possible to clear the outstanding debt. Therefore, you need to make serious sacrifices and cut back on your expenses.
First, you can start by eliminating any discretionary spending of your budget. Such include things like expensive haircuts, unnecessary clothing, and dinners out would be the first to go. Alternatively, you can downsize to a smaller house or a cheaper car.
Sell Your Valuables
Yes, selling your jewelry, phones, computers and other electronics may bring in a healthy influx of resources. You can place them for sale online or have a garage. Yes, the solution may not be ideal for everyone, but if you have a lot of valuable possessions, this option may get you extra time.
Take a Second Job
Are you working in a regular day job? Then consider getting a second one in the evening or on weekends. Use the extra income to pay off your debts.
Contact Your Creditors
Be honest with your creditors and seek assistance from them. Being proactive helps you maintain good standing with your creditors. Use this to negotiate a new payment plan.
Borrow Money from Friends and Family
Yes, this may not apply to everyone, but if your friends and family are willing to help, then accept the offer. Also, draft a repayment plan on how you intend to pay the money back once your resources increase.
Don’t Spend Too Much on Housing
How much do you spend a month on rent? If possible, ensure the amount you spend is below 1/3 of your take-home pay.
Understand Your Cashflow
How much money do you make in a month? If possible, how much do you spend in the same month? Ensure what you get is more than what you spend. Also, save some for the rainy day.
Have a Saving Plan
Don’t save your money for the sake of it. Have a plan. If possible, use two types of savings. One is six months of your overhead costs. The second is long-term savings for retirement.
Consider a ‘What If’ Scenario
What if your income stream goes away? What will you do? Have a backup plan to ensure you don’t rake in a lot of debts and file for bankruptcy when the unfortunate happens.
Don’t Guarantee Loan for Others
Don’t guarantee loans for your friends or relatives. If there are unable to pay the debt, the creditors will come for your neck.