In these economic times, more and more people are filing for personal and business bankruptcy. While bankruptcy can truly be a lifesaver, protecting your home and your assets from creditors, it should be the last option to deal with your money troubles. Far better is looking at your financial health and trying to fix it before things reach bottom.
First, give yourself a financial checkup. Many people run into difficulty when their credit cards get to be more than they can afford. Ask yourself these questions:
-Are you making only the minimum payment on your credit cards each month?
-Are you using your credit cards to pay for necessities, such as food and medicine, because – you don't have the cash?
-Are you using your credit cards to get cash advances for normal expenses?
-Are you making your monthly payment after the due date?
-Are your credit card balances more than your liquid assets?
If you answer “Yes" to two or more of these questions, you may be headed for trouble.
Medical problems, separation and divorce, and job loss or job change are the biggest causes of bankruptcy. While there is often little you can do to prevent these situations from occurring, you may find yourself overextended or simply without enough money to go around. Frequently, it is the cumulative addition of many regular monthly payments which add up to an overwhelming burden. You may want to consolidate these payments into a single, much smaller monthly payment at a far lower interest rate through a home equity line or bill consolidation loan. If you get one of these loans, however, it is very important to cut up all but one or two credit cards and use the remaining cards only for emergencies. Even after taking out a loan to pay off their credit cards, many people just continue to use them as if nothing had changed . . .and end up in an even worse situation.
If things aren't too bad, we usually recommend a three-prong approach:
1. Know where your money is going.
2. Develop a budget.
3. Develop a plan
Know where your money is going. Try keeping track of all your everyday spending. Buy a small, pocket-size notebook, and write down everything you spend for a week or so. Literally. Write down every penny. Record convenience store purchases, automobile expenses (gas, parking, & tolls), meals, tips, money for coffee, etc. You may be shocked at how much of your money goes to different types of small expenses. One client realized that she was spending over $1,000 a year just on the cup of coffee she bought each morning on the way to work. Keep track of where the bulk of your money is going. List your major expenses so you can determine where your take-home pay is allocated.
Develop a budget. Once you know where your money is going, create a budget by examining your spending patterns and looking at ways of maximizing your available resources. Many expenses may need to be cut back until spending is brought under control and bills are paid.
After expenses have been reduced and maximum spending levels have been identified for each budget category, the remainder of your available funds should be earmarked for payments to your creditors.
Develop a plan. It is important to establish financial goals in the same way you have probably already developed personal, educational, or professional goals. Whatever your goals, write them down. Identify a time frame for the accomplishment of each goal and the monthly amount needed to reach each goal.
You obviously want to repay all debts according to the terms of your agreements. Be on the lookout for obligations that contain additional costs, such as late payment charges, over-the-limit fees, and higher interest rates. Since these obligations will wind up costing you more, they should probably be identified as top priorities and paid first. Some of our clients rank their debts by interest rate, pay the minimum payment on all but the highest interest rate, and pay larger amounts to reduce the highest interest rate debt. When this debt is paid, they move on to the next highest interest rate, and so on.
If you find yourself in a real bind, or need further information, call us. We are experienced in all aspects of collections and bankruptcy. We can help you restructure your finances, schedule workout arrangements and, if necessary, advise and represent you in bankruptcy.
American Bankruptcy Institute
National Association of Consumer Bankruptcy
USC Title 11 -Bankruptcy
Personal Bankruptcy Information
Bankruptcy Law Network
Start Fresh Today, Inc
Life After Bankruptcy