Getting financially overextended in your life is one of the worst financial errors that anyone can make. Financial planners and consultants have always advised people not to spend more than they earn due to the predicaments that one is likely to find himself in, the moment bankruptcy creeps into your life. It is important to set your budget in a manner that cannot affect your financial status negatively and have severe impacts on your credit record with different financial institutions. Transforming yourself from bankruptcy to strong financial status depends on the measures you take as an individual to avoid a poor credit track record that can always haunt you in many years. Jonathan D. Pond (A financial Planner in the US) was once quoted saying ‘people who have always found themselves stuck in indebtedness and learnt a lesson usually emerge and achieve brighter future in terms of finance’. Change starts with you as an individual.
So how do you get yourself back on track and avoid the unnecessary financial crisis?
1. Accept the truth as it is: Get a pen and paper and list down all your debts and determine the exact figure you owe different institutions and accept the whole situation. It is important to know this figure so that you can actually pre-determine how to reduce your debts procedurally.
2. You then need to make a calculation of your expenses and determine whether the remaining amount can help you settle debts. If necessary you would be required to reduce your expenditure to an amount deemed suitable to help you settle debts. If this procedure gets complicated and impossible to solve then you need to look for a financial attorney to advise you on the most suitable step to take. Make sure you don’t find yourself living beyond your means by spending more cash than you earn.
3. Set your priorities right. You need to plan how to pay your debts and which debt is more important for you to settle. Financial advisors normally advice that it is important to settle high-interest rate bills so that you can avoid situations such as prepossession of your properties. A step by step settling of debts is preferred so that no confusion gets into your plans.
4. If you have a different form of income then you need to set it to help in paying debts and bills. This extra income can actually work as a back-up plan to help in reducing any active debts.
5. Find yourself a credit counselor. After analyzing your situation, a credit counselor will devise a repayment plan on your behalf and present it to your creditors. Counselors will normally negotiate and schedule for a slightly lower payment per month or even low-interest rates so that you avoid overstretching your finances. If things get tough on your side and none of the plans seem to work, then this would be the right time to file for bankruptcy in a court of law. This could help you but then you need to know that your credit record would be affected dearly for some years to come.