5 Ways to Avoid Bankruptcy
Everyone makes mistakes with money sooner or later. The best we can do is try to mitigate our bad decisions and solve financial problems before they spiral out of control. Here are a few easy, pragmatic, and straightforward steps to fixing your financial worries, controlling your debts, and avoiding bankruptcy.
- Avoid Bad Debt
Although it sounds contradictory, there is such thing as good debt and bad debt. Not all debt is detrimental to your finances. If you’re in debt because you bought a home or made some kind of educational investment, this is considered good debt, as these are assets that will likely appreciate in value. Bad debt is when you spend money on things that depreciate in value or are expendable, such as cars or vacations.
- Limit Your Credit Card Use
Avoid using your credit cards for purchases you cannot afford or for purchases that you will not be able to pay back to your credit card in 3 months. If your credit card has a high interest rate and you carry a substantial balance, it’s easy to fall into the trap of paying only the minimum monthly amount. Using a credit card to cover the basics when you can’t pay out of pocket is symptomatic of a greater problem.
- Follow A Budget
Making a budget isn’t even half the battle. It’s following one that’s important. Following a budget might seem like a constraint, but ironically it’s a path to financial freedom. A budget helps you live within your means, which means paying off bills on time and not worrying about being able to afford essentials. You’ll learn how to organize your money in a responsible way, partly because you’ll have a much better idea of how much money you have in the first place.
- File a Consumer Proposal Instead
Bankruptcy can be a tedious, nerve-racking process that puts your assets at risk. You’ll be obligated to report any monthly income you may receive, or any changes to your employment or living situations, no matter how minor. When you file a consumer proposal instead, you’re debts are negotiated and paid off interest free over a period of up to 5 years. Your assets will be protected and there is no requirement to report your income on a monthly basis as is the case with bankruptcy.
- Set Financial Goals
A financial goal can be anything from following a strict budget to successfully saving your money and buying a big ticket item, like a tropical vacation or a new addition to your home. The key phrase there is “saving your money.” This is something you can do without resorting to a loan or credit card. Think of it as a celebration of your financial accomplishments.
Avoiding bankruptcy is more complicated than just paying your bills on time. Luckily, most financial problems can be avoided completely or solved before they overwhelm you, as long as you follow these simple steps. It’s not the financial mistakes themselves, but the lack of care and preparation that often creates them, that leads to the quagmire of debt.
About the Author
Gurinder Dhaliwal is the Burnaby, Debt Relief Specialists helping Canadians overcome debt and money problems by offering debt restructuring, credit rebuilding and budgeting services. Call him at 778-340-4002.
