Avoiding Bankruptcy - How To Avoid a Financial Problem

Bankruptcy may seem like a quick and relatively easy fix to a big problem, but it isn't. First, it can haunt your financial life for a decade or more, keeping you from owning a home, buying a new car, or even living the life you really want.

Maybe you're debt is beginning to weight you down. It's not to late t change some bad habits and reverse your financial woes. How can you avoid bankruptcy? Here's a good place to start:

Get Control of Your Spending:
Less than 43% of Americans today have more than $1,000 saved for a rainy day. Living paycheck to paycheck is a dangerous, considering that emergencies happen every day. Cars break down; people get hurt and miss work; unexpected pregnancies force women out of the workforce, and more. If you're struggling to pay your bills now, imagine the chaos an unexpected layoff would cause.

Sure, not everyone has the ability t save a large chunk of their salary, but almost everyone can put $5, $10 or even $15 a week away in a savings account. The key to living under your means, and avoiding bankruptcy, is creating a workable spending plan (ok, a budget), and stick to eat. First figure out the things that are essential; place to live, food to eat, a way to get to work, etc. Now, this doesn't mean that you need to live in an $1800 a month condo if you make $23,000 a year. It means finding an apartment or home that you can afford; a reasonably priced car (or take the bus), and regular old jeans, not the designer kind.

Remember, the point here is to spend less than you make, and that will mean sacrifice of some type. How much sacrifice depends on how far over your income your spending has become. Once you've figured out your necessity spending, then you can take a good hard look at your non-essential spending habits and limit that to what you can reasonably afford and still be able to have enough left to pay down your current debt and save for an emergency.

So, how much should you be spending? Most experts agree that a sound-spending plan should consist of the following ratio:

-35% of your net pay for housing costs (rent, utilities)
-15% for transportation ( car payments, gas, maintenance, insurance)
-15% for debt (credit card payments, student loans, personal loans, etc)
-10% toward savings
-25% for everything else (clothes, food, fun)

Following this ratio should allow you to live a comfortably debt-free life, freeing you of he worry of bankruptcy in the future.

Debt Consolidation:
Ok, so maybe it's too late to prevent financial trouble - you already have it. How can you stave off bankruptcy in order to get your financial house in order? If you own your home, and you're able to handle the payments, causing your home equity to consolidate your entire debt into one long-term loan may be the answer. Be careful though. Until you break the spending cycle that got you into trouble in the first place, this is only a temporary solution that can ultimately mean the loss of your home if you continue to wrack up debt after the consolidation is complete. If, however, you're prepared to pare back your expenses and attack your debt head on, then this may be a great way to buy a little time and keep creditors in check.

Debt Settlement:
Sometimes, even the equity in your home is gone and the well is simply dry. Creditors hate bankruptcy since they either never reclaim any of what you owe them, or get pennies on the dollar through payment options. So, once bankruptcy has become an option, contact your creditors and see if there's a possibility you can settle some of your debt in order to help you avoid bankruptcy altogether. Many are more than happy to forgive up to 60% of your current debt if they are guaranteed they'll get the last 40% in a timely manner. Be prepared, however, to prove your case. Face it, you haven't been very responsible thus far with your spending, or your bills, so they'll need a little convincing that things have changed and that you are indeed working hard to make things right.

Credit Counseling:
Oftentimes, people get into financial trouble simply because they don't know any better. Credit counseling can be a wonderful resource to help you get your spending under control, learn to live on a budget and handle debt settlement and consolidation for you. Just be sure that you choose a reputable service that has a proven track record.

While bankruptcy may seem like the best solution when creditors are calling every hour of the day or night, but, bankruptcy can often be avoided with a little ingenuity and some hard work.