Money Matters Monday: Tips to Avoid Bankruptcy
Other articles in the Money Matters Monday series have addressed setting a realistic budget, stretching that budget to ensure that you are not overspending on necessities, and tips for establishing an emergency fund. Despite all best attempts to budget and be responsible, sometimes an event happens, such as a medical issue or a natural disaster, that severely alters your financial landscape and it is a daunting task to attempt to recover. If you are in or close to this position, it is important to consider if bankruptcy is an effective tool to restructure or remove your debt. The topic of bankruptcy as an option to get out of debt is worthy of its own article so let’s assume that bankruptcy is not an option and you want to avoid that outcome. Below are some tips to avoid having to declare bankruptcy.
Before you even get into a situation where you are considering bankruptcy, ensure that you are considering the long term impact of your short term financial decisions. When making large decisions such as how much house to buy or whether to buy or lease a new car, consider if you will be able to meet these financial commitments down the road if you fall on hard times. The bottom line is to not continually over extend financially by buying houses and vehicles that are out of your price range. You are the best judge of your ability to afford items; banks will approve you for spending that is out of your range. Don’t allow the banks to tempt you into purchasing too much house or car. If you are in a financial pinch down the road, you do not want to be at risk to lose your housing or transportation.
When your financial outlook is less than optimal, you need to devise a budget and ensure you have a solid understanding of where your money is going and how you plan on reducing your debt. At this point it is critical that you communicate with your creditors. Often creditors want to understand why you are late and when they can expect to be paid any money. If you know that you will be able to pay them at a certain point, let them know and ask if they can help you by establishing an alternate payment plan or other programs intended to help customers through hard times. In conjunction with this, be sure that you are monitoring your credit report. Although it may not be pretty, you want to ensure that all of the information reported is accurate.
If you are in a position where you are considering bankruptcy, take some time to research reputable debt consolidation companies that may be able to assist you in setting up a debt reduction plan and work with creditors to help you settle your debt for less than what you currently owe. Like engaging with any company, it is critical to ensure that the debt consolidation company that you choose is on the up and up. One place to assess any company you are considering is through the Better Business Bureau and the local Chamber of Commerce. Also make sure you ask about and can afford any fees associated with your debt consolidation plan. Lastly check and see if the company is accredited by the United States Organizations for Bankruptcy Alternative – A Debt Negotiation Association (USOBA) or The Association of Settlement Companies (TASC). These are independent organizations that help govern how these companies work. Ultimately you need to be in control as you approach debt consolidation. Be an active participant and make decisions that reflect an understanding of the goals you are setting to settle your debt.
Even the most financially responsible people can find themselves in a dire financial situation because of events outside of their control. It is not enough to sit back and think that it won’t happen to you. Make financial decisions with the worst case scenario in mind so that you are not overextended. If you do find yourself in a situation where you cannot pay your bills on time, contact your creditors and seek help from reliable and reputable sources that can provide the guidance to help you get back on your feet without having to resort to bankruptcy.