Struggling with debt? Here’s how to avoid bankruptcy
Debt is pretty much a fact of life for most Americans, especially in today’s post-COVID landscape. Most families do not teach their children how to responsibly manage money, which leads to problems down the road. The majority of today’s workforce has learned money management through trial and lots of error.
It is far too easy to get overextended on your finances, and most people do not realize that they are in trouble until it’s almost too late. When you are already stretching your finances to the limit, any unexpected bump can send you down the road to bankruptcy.
If you are wondering if you’re overextended or starting to struggle with debt, the following signs show you are in danger:
-
- You don’t have any savings, or you have to pull from your savings every month for expenses
- Other than your car payment and mortgage, you could not pay off 100% of your debt within 1 year
- You do not actually know how much you owe
- You use new credit cards to pay off old credit cards or loans
- You use credit cards for everyday expenses
- You always pay only the minimum due on your credit cards
- You have paid your credit cards late or skipped payments
- More than 20% of your actual take-home pay goes towards debt
You do not have to be behind – if you’ve got credit card balances that never seem to get paid down because you are always making new charges, that is a dangerous situation. A sudden accident with big medical bills or even the loss of your job would send you spinning out of control.
If you said yes to any of the items above and think you might be overextended, you should take immediate steps to get your financial situation under control. If you can regain control and stay on a healthy path, you’ll be able to avoid filing for bankruptcy.
Here’s how to get your finances on track:
- Figure out exactly what you owe. It can be scary to sit down and look at the big picture, but you need to know the exact number. Once you know exactly what you owe, you’ll be able to make a plan.
- Look at your total take-home pay for a single month. This is the most important number, because you have to create a plan where you’ve got more coming in than what you’re spending.
- Create a detailed budget. Figure out what you have to spend for the essentials – shelter, utilities, food, and transportation. Don’t count your credit cards or any other expenses here – you need to set your number for necessary expenses so you know what’s left over each month.
- Take the money that’s left over and start applying it to your debts. Pay the minimum amount due on every debt except one, and push as much as you can afford towards that balance. Once you’ve paid off that debt, move on to the next. If you make a solid, realistic plan for paying off your debts, it’s much easier to stick to your budget and be responsible with your money.
- Once you’ve paid off most of your debt, start saving. Build up your savings in case an unexpected event comes up – you don’t want to have to start all over!
Most importantly – stick to your budget even after you’ve paid off your credit cards. If you stick to your budget and plan ahead for big purchases, you’ll find that it is easy to stay on top of your finances and avoid debt altogether.
We have helped many hundreds of Dallas-area residents with their bankruptcy cases over the years, and the most common question we hear first is “Should I file bankruptcy?”
The Great Recession hit America hard from December of 2007 to the middle of 2009, millions of US residents lost their livelihoods and homes. It was the worst economic downturn since the 1930s and the Great Depression, and it took almost a decade for the labor market to fully recover.
We can talk all day long about our experience helping local Dallas residents get a fresh start through bankruptcy, but sometimes our clients say it better than we do.
While most of our potential clients ask about what’s involved in a bankruptcy case, and what they need to do when they are filing, many forget to ask what NOT to do… And the things you shouldn’t do before filing are just as important as what comes afterward.
It is Halloween this weekend, so we had to share something scary here on the blog… and this time, we are sharing 4 Scary Ways to Damage Your Debt. Let’s face it – nothing is scarier than overwhelming debt that spirals out of control.
The proliferation of credit cards and the “gotta have it now” American lifestyle have lead to a problem: for many Americans, living with debt is par for the course. The changes in America’s financial landscape due to COVID and resulting lockdowns have only made things worse. In many cases, debt spirals out of control until filing for bankruptcy appears to be the only way out.
One of the most frustrating things about bankruptcy is that it is so misunderstood. You do not really care much about it until you are in a dire situation and need it – and then there is so much myth and misinformation, it becomes an incredibly daunting task to decide how you will proceed.
Most of our clients come to us, struggling with massive debts that have spun out of control. One unforeseen bump in the road (a sudden job loss, an accident, a medical condition) is all it takes to send most families into a downward debt spiral. We have shared lots of tips in the past for avoiding debt, but it is also important to get advice from a financial advisor or bankruptcy attorney before you decide to file.