No one imagines they’ll find themselves staring down on personal bankruptcy. But considering over 500,000 people filed for personal bankruptcy in 2024, you’re certainly not alone. And unfortunately, it’s easier than some people think to find yourself facing extreme financial hardship whether through extenuating circumstances, or choices of your own.
What is Bankruptcy?
In simple terms, bankruptcy is a way for someone to eliminate or reduce their debt in an attempt to get a blank financial slate. This legal process can include selling off assets in Chapter 7 or establishing a payment plan in Chapter 13 over the span of years until the debt is paid off.
While there are a few different types, the general premise is to understand it involves overwhelming debt and an inability to pay.
Although bankruptcy can be a helpful solution for some, making smart choices early on is a healthier financial route.
4 Risky Financial Moves & Tips to Avoid Them
Now that you understand what bankruptcy is, you probably realize it’s definitely something you want to avoid! That’s why we’ve outlined four major players that can cause overwhelming debt, as well as tips to avoid making them.
Living Outside Your Means
It can be hard to admit, but sometimes we want that new car, that new house, or that new wardrobe when we don’t actually have the funds to pay for it. Constantly putting yourself at a deficit, meaning your bills outweigh your income, will eventually lead to a dangerous cycle until you’re drowning in debt.
While easier said than actually put into practice, budgeting is your primary line of defense when avoiding this costly mistake. Sit down and outline your income and your necessities, such as bills, groceries, and gas. Then, you can allocate the remaining amounts to savings and any “fun money” you’d like.
By cutting unnecessary spending and only splurging on wants when actually feasible, you can avoid finding yourself sliding down a slippery slope.
Credit Cards
Credit cards can be an incredibly useful tool for finalizing larger purchases, earning rewards, and building credit when used wisely. However, credit cards are also double-edged swords that can compound debt quickly.
When using credit cards, be sure to pay off your balance every month. If you don’t, interest will be charged on the remaining balance, increasing the amount you owe over time until you’re facing a mountain of debt that you can’t see over.
Also, avoid the vicious cycle of paying off one credit card with another, or even opening new ones to try and stay afloat.
Budgeting, as discussed, will improve your cash flow, hopefully meaning you won’t need to use credit cards very much, if at all. Some tips that can help make credit cards work FOR you include:
● Avoid high interest cards if possible, which includes store-based credit cards
● Choose cards whose rewards actually benefit you. For example, if you travel a lot, consider a car with higher travel rewards.
● Consider a balance transfer. While not a tactic you want to perform often, a one-time transfer of a smaller debt can give you a specific amount of time to pay off that balance before interest will begin accruing, typically anywhere between 6-18 months. But be careful, these cards can hit you with BIG interest rates if not paid off in the agreed upon time frame.
Medical Bills
While you can’t always avoid medical issues, you can prepare for them. Having insurance that can help cover costs is a huge first step in avoiding medical finance catastrophe. Some of these plans may also offer health savings accounts (HSAs) to give you further cushion for unexpected medical bills. At the very least, you can be sure to add to your savings each month to cover unforeseen costs, medical or otherwise!
Adjustable Interest Rates
Adjustable rate mortgages (ARMs) have seen a boost in popularity in recent years. If you have this type of loan, your payment will fluctuate based on the current interest rates. While that sounds great when rates are low, you could find yourself in trouble if the payment rises to the point you can no longer make it. Be sure to carefully assess this option with a professional.
Should You Consider Bankruptcy?
Personal bankruptcy should always be considered as a last resort. Other avenues that could be considered are reaching out to debtors to develop a repayment plan or looking at overall debt consolidation. However, sometimes the financial situation is too far gone and these avenues don’t offer the same relief.
If you’re unable to make minimum payments on your bills, struggle to avoid daily necessities, and have exhausted all other options, it’s time to consider personal bankruptcy.
Talk to a Bankruptcy Attorney in Massachusetts Today
By utilizing the above tips, you can hopefully avoid compounding any debt to the point you can’t manage it. But if you do find yourself facing personal bankruptcy, there’s no need to be ashamed. It’s rare to find someone today who hasn’t dealt with money troubles, and our bankruptcy law firm has helped many people reduce their stress with a plan and a fresh start.
Reach out to Hines Law full service bankruptcy law firm at one of our locations throughout the greater Boston area today to start your journey to a debt free life!