There are several reasons why you must avoid bankruptcy at all costs. In the first instance, it may look like the best solution, as it offers a clean state, freeing one from all the debts that one owes to various creditors and that were almost impossible to pay off otherwise. Still, it is not the right solution because you may get instant relief because of this but in the long run it will make your financial life terrible. You can realize the severity of the consequences with the very fact that it may even affect your future employment. That is the reason why you should do everything that you can to avoid bankruptcy.
These are some of the things you can do to determine the likelihood of avoiding bankruptcy.
Prepare a full snapshot of your debt load.
The first step you can take is to get a full picture of your debt load. Start with gathering all of your loan and credit card statements to determine the amount you are paying in terms of monthly servicing costs, interest rate, and total debt. Weigh these bills against corresponding assets, such as real estate in the case of a mortgage. Use his opportunity to determine if there are other assets that can be liquidated to repay debt.
Healthy vs unhealthy debt – the Net Worth Statement
The next step is to categorize the debts as healthy debts and unhealthy debts. This will give you the real picture and you will be in a better position to plan on how to avoid bankruptcy. Medical bills, high-rate car loans, personal loans, and credit card debts are unhealthy debts while home loans are healthy debts.
Create an income statement
After analyzing what your net worth is, consider your solvency. This means taking your income and subtracting all monthly expenses from this amount.
Spend Less and Earn More
One of the most effective tips for getting out of debt involves combining a policy of spending less (thereby reducing your monthly expenses and improving cash-flow) with a policy of earning more income (thereby generating more cash to pay toward the debt). Saving a single dollar every day would result in monthly savings of $30, or $360 per year. When trying to avoid bankruptcy, such savings can be instrumental, particularly if you are able to increase income by the same amount; the end result is doubling available cash flow.
However, if you are in a deep trouble and are unable to think of a better alternative, you should consult a credit counselor. They are professionals that can tell you how to manage everything in an effective way in order to regain control of your finances and avoid bankruptcy. Another way to go about improving your finances would be to invest a small amount of money into a detailed e-book on the subject as well as personal finance programs that can help get your finances back on track. At less than $50, there are programs that are comprehensive enough to be well worth the investment.