No one is safe from the possibility of financial hardship, whether due to the world economic conditions, poor financial planning, or any number of unexpected circumstances.
Without adequate funds, it becomes difficult to perform some functions in life that we take for granted. Despair won’t help you; in order to preserve your way of life and rise from the ashes, you need to take control of things and act in a decisive manner.
Below we list a few recommendations that will help you emerge more or less intact from the brink of bankruptcy.
Prioritize and Plan
Panic is your biggest enemy in this scenario; remain calm and acquire a clear understanding of your debt, expenses, and income. Getting a clear breakdown of your current situation is the first step towards reversing your damages.
Divide your debts in collateral and non-collateral categories. Collateral debt is all debt that is secured against your personal assets such as your house or car, while non-collateral debt is unsecured and in many cases only results in the loss of credit rating if you defer it for too long. Generally deal with collateral debt first so that you don’t end up losing your house or car and then move towards the non-collateral debt, but there are exceptions.
Construct a pecking order for your debts in such a manner that the most critical debts are dealt with first. The following checklist will help you understand what is important and what is not.
- Mortgage – Failing to pay the house or office rent can get you kicked out leaving you stranded on the streets, so ensure that you have secured your mortgage payment before tackling any other obligations.
- Utilities – Water, electricity, and gas are basic needs that an individual cannot afford to lose. Get these bills sorted so that you have the basic necessities that keep you sane.
- Child Support – As a parent, you have a legal and social obligation to help towards the upbringing of your child. Failure to make these payments can result in loss of custody or even jail time in severe cases.
- Income Tax – Failure to pay income taxes is a serious offense that can rack up penalties while also creating legal repercussions that can be extremely difficult to deal with.
- Secured Loans – As discussed earlier, secured loans should be dealt with on the priority basis.
Certain items on this list can be negotiated with the concerned parties to defer your obligation. The IRS has several plans in place that can help you make your tax payments on a monthly basis rather than bearing a large amount at one time, for example.
Although it is not good for your finances over the long term, making just the minimum payments on your credit card can help you stay afloat. Ensure that you only spend on the most critical things so that you don’t rack up any more debt.
Reduce Your Spending
- House – Rent, food, and transportation are the major expense categories that any individual has to deal with. Scrutinize these categories closely to ensure that you are not wasting any money. In the case of housing, you can consider moving to a smaller house or taking in a lodger.
- Transportation – Rather than maintaining and pay for an expensive car, try to discover cheaper alternatives. Carpooling and public transportation are valid options that help in reducing overall transportation expenses.
- Food – Planning your meals in advance can help you understand how much money you actually need to spend on food. Shop smart to cut back your expenses and try to conserve as much money as possible on ingredients.
Discover New Sources of Income
- Pawn unwanted items – Selling valuables like jewelry, extra furniture or electronic items can get you some wiggle room. Don’t make a habit of pawning but anything extra or unwanted can certainly help you get some extra cash.
- Equity release – Car title loans and home equity loans allow you to borrow against the value of your house or car. It’s a good way to get a loan at a low interest rate without having to sell your property. For seniors 62 years and older, one way of tapping into your home’s equity is to get a reverse mortgage. This might come in handy if you’re retiring and need additional finances.
- Part-time jobs – An individual dealing with impending bankruptcy needs to wrestle control back in their life. They should be on the lookout for any and every opportunity to earn some extra cash. Part-time jobs are great for earning some extra income.
- Government/Angel Assistance – There are several government programs that are designed to help individuals struggling financially to get back on their feet. Unemployment insurance and food stamps are some such examples.
Declaring bankruptcy is a last-ditch option that can help you clear some of your obligations but it doesn’t completely eliminate all of them. When an individual is broke and has to struggle for the survival of their family then they need to put the pedal to the metal to get out of the financial crunch.
Adhering to the above tips will help you make solid decisions that draw you away from the possibility of bankruptcy.