When you feel like you can’t pay your bills, the pressure is enormous; we’re all been there. Sometimes the pressure is so great that you don’t know what to do or where to start, so you don’t do anything. Trust me, that’s the worst thing you could ever do.
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At some point, when all seems hopeless, maybe you start thinking about bankruptcy. This can be a way of starting over, but bankruptcy of today isn’t like it used to be. You don’t always get everything taken care of; there are still some things you’re liable for, such as student loans and taxes. You also have to deal with that 7-year period of limbo, in some cases 10 years, where your life is pretty much on hold if you want to buy something but need credit to help you out.
Sometimes you have to go that route; you might not have any other choice. But there are many people who go that route way too quickly, and they don’t have to. Let us give you 5 things you should do or consider before going the bankruptcy route:
1. Know your expenses versus your liabilities.
You’d think this one would be something everyone thinks about but it’s not. That’s because it involves doing something people hate to do, that’s thinking about their financial situation and potentially looking at or going on a budget. This means putting together all your income and liabilities, which means all the money you “have” to pay out on a monthly basis (leave things you “want”, such as cable and clothes, off this list at the start), and calculating how much money you actually bring home monthly, and knowing what the difference is. For at least half of the people out there, doing this step will be enough for you to learn how to manage your money better.
2. Think about a part time job, a side gig or a better paying job.
If you did the first step above and found that you were short anywhere from $100 to $200 a month, a good part time job might help out some. However, you might have to worry about state taxes in some places, in which case maybe thinking about looking for a better paying job is the thing to do.
In the book Millionaire Maker by Loral Langemeier, she highlights multiple clients who found ways to make extra money based on skills they had that they could market to others. A few of those clients ended up going into business for themselves once they realized that could make more money doing that full time than what they were already making. Self employment isn’t easy, but working it on a part time basis might be just what you need to get control of your finances.
3. Try getting a consolidated loan or a line of credit on your mortgage.
If you’re going to do this you’re still going to need to learn how to budget your money. If you qualify, it’ll allow you to pay off a lot of your bills and make smaller lump sum payments to one entity, but it also means learning how to control your immediate spending, which some people aren’t capable of. This is a good time to work with an accountant to help you set up a proper budget.
4. Call some of your creditors to try to make payment deals.
Everyone hates this option and yet it’s probably one of the smart things you can do. They might cut off your line of credit for a while but that’s to your benefit, especially if they don’t cut it off forever while giving you time to catch up. Sometimes you’ll find out that you’re allowed to skip a payment or two here and there, which many car loan organizations have built in, and this might allow you to pay something else off in a couple of months and then resume paying them.
5. Verify your financial position with an accountant or a free local credit service organization.
I acknowledge that budgeting isn’t everyone’s strong suit. Using someone like Consumer Credit Counseling, basically a free service that helps you figure out your financial position (if they advocate for you with creditors there will be a small monthly fee you’ll have to pay them) can be a major help, but if you have other considerations such as taxes or you own a small business, it’s probably smarter to go to an accountant. That might cost you more up front, but you’ll save greatly on the back end if you follow their recommendations.
If you do all these things but you’re still in desperate trouble, then at least you’ll head into bankruptcy knowing where you stand. It always works better having a professional helping you come to that decision (I wouldn’t recommend going to a bankruptcy lawyer first, but after the fact that’s your best move so you have representation).