Bankruptcy is a word that if spoken leaves the entire human race feeling frightened and clammy inside. You’ve heard the horror stories about people who have had to file for bankruptcy and the situations surrounding it sound absolutely ghastly. There are a lot of unknowns surrounding bankruptcy, and there are many questions that need to be answered and understood.
What is Bankruptcy?
The first step in avoiding bankruptcy is to know what it is. Bankruptcy is a process under the federal court that allows for individuals or businesses to have their debt essential erased or repaid under the cover of the bankruptcy court.
There are different kinds of bankruptcy one can file for. Chapter 7 bankruptcy makes it so that the court will forgive your debts and you don’t have to pay them back. Under Chapter 13, you file with the court and devise a plan on how you’re going to pay those who credited you money back. It’s all a very legal process that depends entirely on the situations surrounding the case.
Bankruptcy can get very convoluted very quickly and it absolutely destroys your credit so it’s important for you to attempt to avoid bankruptcy at any cost. Here’s what you can do to ensure you never have to file for bankruptcy.
Limit Your Spending
Rule number one in avoiding bankruptcy is to simply cut your spending. If you make a budget you will be able to see and manage the amount of money that comes in and goes out. You also be able to asses at a much faster rate when spending is absolutely unnecessary.
Some say to cut up all your credit cards, but credit cards aren’t always bad. Some offer perks and advantages like cash back or air miles that can make having the card worth it. These can also be a risk depending on the level of interest and how good you are at managing your money in the first place.
Always Pay Your Credit Cards in Full
With the credit card thing being said, it’s crucial to pay your credit card bills in full every single month. When you do this you will avoid the high interest rates that accrue on cards and get you into serious trouble. The trick is to manage your cards, select the ones that have low rates and high benefits, and never spend more than you earn, especially on purchases you can’t afford.
Avoiding bankruptcy is all about money management. It isn’t something that is learned overnight, but it is crucial to the quality of life you want to live in the long run. Bankruptcy is rarely a good option. It’s not an easy or quick fix, so it’s better to avoid it all together. Get smart now so you don’t have to pay for it later.