If you are in debt, you’re not alone. According to a Nerdwallet research collected back in 2014, over $15,000 was owed by the average household on credit card alone. On top of this, there was also the student loan and mortgage debt which was equally high. In most cases, overspending is the reason why many people find themselves in debt. However, debt is also caused by some issues beyond our control such as medical bills in case of health emergencies. There are grave consequences of bankruptcy such as the impacted credit rating and even loss of property. Below are some of the tips that can help you to avoid bankruptcy.
1. Cutting expenses
More often that not, you will be in some sort of debt at some point in life and the main objective is to dedicate as much money as possible to pay down your debt each month. This means that you will be cutting back on expenses and this will call for some big sacrifices. The first thing is to avoid discretionary spending as soon as possible. The first things to go is buying unnecessary clothes and items, going out, taking food outside and expensive haircuts. It is also important to downsize to a smaller house and or a cheaper car.
2. Maximizing your income
Slashing down your expenses does not necessarily imply that you will have enough money left to repay your dent and still continue with your normal lifestyle. This calls for maximizing your revenue by getting that extra job or even a third one. This should apply to the spouse, if you have one, as well. Other strategies of maximizing income involve selling some of your stuff that you had bought during the ‘spending’ days. You can also take an extra roommate as two paychecks are better than one when covering home expenses.
3. Prioritizing your debts
One of the main mistakes that people make is not prioritizing how they’ll pay off their debts. It is not advisable to approach this randomly and you need to have a solid plan. First of all, budget to pay for the absolute necessities such as housing, education, utilities, food, child support and transportation among others. After this, then go to the one with the highest interest rate and put in as much money as you can into this one. Loans such as student loans can be deferred when one is in extreme financial problems.
4. Avoiding debt consolidation loans
To many people, debt consolidation loans normally sound like an easy and quick fix to your problems. In most cases, a person normally gets a loan with a monthly payment and use the profits to pay off the other debts. In a home equity loan for example, your home will be the collateral. Most people tend to think that the problem is fixed but fail to know that there is an underlying problem of financial mismanagement. This can even be more expensive in the long-haul due to the high fees and interests or even losing property.
