Avoiding bankruptcy (while you still can)

Personal Finance

Do not wait for bankruptcy to loom over. Fix your finances at the early signs of danger. How will you do it? The answer is money management. Here are some tips.

Know where your money goes

Many experts say that keeping track of your spending will help you have a better picture of where you are financially, and give you a better idea of what you can actually afford. And no – having your spending patterns all up in your head is not enough. You need to literally jot down everything that you purchase or pay for everyday, no matter how small it is.

Little things such as signature latte, magazines you never read, or clothes you buy impulsively because they are on sale, all add up – sometimes to hundreds a month. A list will help you realize how these ‘little’ things drain your bank account, so you can cut back on spending.

Pay yourself first

Make it a point to set aside a definite amount every month for yourself. Some experts recommend saving at least 10% of your salary, but if this impossible, a smaller, more manageable amount will do. The key is to do it regularly and religiously. Do not let anything derail your savings plan.

Invest in health insurance

Your health is one of your greatest assets. Without it, you will find it very hard to work. Do not scrimp on your health insurance plan because you never know how much you will need in the future. Choose a plan that offers the widest coverage.

Live well, spend well

Being “money wise” does not mean being a penny-pincher. Just cut back on things you don’t need, and instead put your money on things you enjoy. For example, do not pay for 150 channels of cable TV when you only watch 10 or 15.

Here’s a start: Brew fresh coffee at home and bring it to work so you won’t have to spend on Starbucks, eat out only on special occasions, and use your mobile phone only when necessary. You will be amazed at how much money you can spend doing these simple things.

 But what should I do when I’m already buried in debt?

When all else fails and you really become financially drained and burdened by debt, remember that bankruptcy is not your only resort.  There are other alternatives you can explore.

 a.  Try restructuring. Talk to your creditors and ask if there are alternative payment methods available to you. Many credit card companies agree to restructure your debt into manageable increments until you are able to pay it fully. Many of them will agree to work on a new payment plan with you, especially if your reasons for not being able to pay are valid. They are especially friendly to borrowers with good credit history. They also usually give special consideration to people who cannot pay because of sudden unemployment, illness, and other such reasons.

b.      Try debt consolidation. Debt consolidation allows you to simplify your debt servicing – you simply make one monthly payment to one financial institution and in most cases, this monthly payment is actually much lower than the sum of all your multiple payments. How is this possible? A third-party agent (a debt consolidation company) agrees to pay off all your debt on the condition that you put up collateral, such as your house.