Great Ways to Avoid Debt and Bankruptcy

Believe it or not, you can live an enjoyable and healthy lifestyle without getting in over your head in debt. The best way to avoid taking on more debt than you can handle and having to file for bankruptcy is to take control of your personal finances and your spending habits. Money is not a mysterious thing; you just have to make the numbers balance out in your favor. Here are some ways to help you avoid the pain of debt-induced bankruptcy.

Track Your Spending

Many people have no idea where there money goes. Do yourself a favor and track your spending for one month. Keep all your receipts for everything. At the end of the month, group your purchases into categories and tally everything up. This will help you look for areas where you are spending far more than you should. Figuring out your typical spending habits will also help you be more prepared when you sit down and create your budget.

Budgeting for Direction

If you don’t have a personal budget, you might as well be flying blind when it comes to managing your money. The “spend as you go and figure out how to pay for it” later approach often leads down the road to bankruptcy. List all your monthly expenses including allowances for things like gas, food, clothing, etc. Tally up your expenses and compare it to your income. If you have more expenses than income, you have to either cut costs or earn more money.

Rainy Day Saving

Keep in mind that your income needs to exceed your expenses and instead of spending that surplus, you should save it. Have at least two types of savings accounts, one for unexpected emergencies, and one for your retirement. Your emergency savings account is your back-up fund for unplanned events so that you don’t have to borrow money to cover these expenditures. If you have additional goals, such as taking vacations, you should save for those things as well.

Prioritize Your Purchases

There are two types of purchases: the things you want, and the things you need. While this may seem blunt, you have to learn to recognize the difference between the two. You may need to buy new clothes for a job interview. However, buying new clothes because you see something you like and it is on sale is a want. Cut back the “want” purchases to what you can reasonably afford within your budget and without paying for them with credit.
Tackle Student Loans

For many people under 30, student loans is their biggest single debt. Even if you file for bankruptcy, they do not go away. If you are struggling with massive student loan debt, look into options like deferment or forbearance. There are a variety ways to get help paying off your student loan debt, so explore your options. The situation may not be quite as bleak as you think and you may even be able to free up some money in your budget.
Hold Off on Buying a Home

Buying a house before you are in good financial shape is one of the easiest ways to get in over your head. As a renter when something breaks, you call the property owner or management company and they take care of it. When you own a home, suddenly you’re responsible for everything. You should be paying your bills on time, saving money, and have a good size nest egg, separate from your home down payment, before you consider buying a home.

Overusing your credit cards can be killer. Keep in mind that unless you pay off your credit card balances during the grace period, you pay interest that adds to the cost of every purchase that you make. If you do that, you might as well be throwing your hard-earned money out the window. For the sake of keeping a good credit rating, it is good to have one or two cards that you use for small purchases, but pay the bills off everything month so they don’t charge you interest.
Take Care of Your Vehicle

A surprising number of car problems happen simply because the owner didn’t keep up with regularly scheduled car maintenance. Make sure to get your oil changed on time. Regularly check your fluids. Don’t wait until your tires are practically worn to nothing before replacing them. While these things do cost money, they are expenses you can plan on and work into your budget. Keeping up with your car’s maintenance will help save you money in the long run.

Admittedly, some of these things are difficult to do if you don’t earn a lot of money to begin with. However, that is even more reason why you need to be thrifty and make smarter financial decisions. Stretching a limited income is difficult as it is, but it becomes nearly impossible if you have bad spending habits. Instead of running up bills that you can’t pay, cut back on some of your expenditures until you can afford them.

Tony Standin is a personal finance specialist with a passion for helping others live strong financial lives. He’s filed for bankruptcy himself and knows how tough it can be to get over serious debt, but he’s living proof that it’s possible.