It takes seven years for a bankruptcy to be removed from your credit report. Because bankruptcy can have such a negative impact on a person’s credit, it really should only be done as a last resort. Many people who think bankruptcy is there only option don’t realize that there are steps they can take which can help improve their financial situation without taking having to file.
- Make a Budget and Stick to It
One of the most important steps to avoid bankruptcy is create a budget and do not deviate from it. Your budget can be either a weekly, bi-weekly, or monthly one. Many people create their budges around their pay periods. Make a list of all your expenses so you can see exactly where your money is going each month and exactly how much you need to pay out in order to meet your debts. You can even use special budgeting apps to make the process even easier.
- Cut out the Extras
A budget will help you control your spending, but you also have to make responsible decisions on what is really a necessity and what is more of a “luxury.” For instance, instead of spending money on take-out, save money by making meals at home. Spending more than what you actually make will only continue to drive you further into debt. Living below your means will allow you to put aside some money in case of an emergency. Ideally, you should be saving at least 10 percent per paycheck for your emergency fund.
- Leave the Credit Card at Home
All too often, people use their credit card for a purchase with the intent they will pay for it all when the bill comes in, however, when the bill arrives, they don’t have the cash to pay in full. Do this too often and you end up with high interest payments and charges and fees for being over your credit limit and late with your payment. Leave your credit card at home and if you can’t afford to pay something in cash, wait to purchase it until you can.
- Eliminate Expenses You Can’t Afford
There are certain monthly bills we have, like cable and cell phone service, which often go up each month without us even realizing it. Before too long, that $100 cable bill is now $200 per month. Contact each of your service providers and see about downgrading your current plan or shop around with their competitors to see if you can get a better deal.
- Negotiate Existing Debt
When you owe creditors money, they know that if you file for bankruptcy, they will never see any of that debt. But if they work with you to renegotiate the debt, they will eventually get paid. Many companies are willing to help by either lowering the interest rate or spreading out the number of payments in order to lower the monthly amount due.
Following these tips will help you avoid the need to file for bankruptcy and help you financially recover much quicker. For more information, and to discuss the circumstances of your situation, consulting with a chapter 13 or chapter 7 lawyer Peoria IL relies on may be helpful.
Thanks to our friends and contributors from Smith & Weer, P.C. for their insight into avoiding bankruptcy.