Bankruptcy is among the top life-altering negative events that a person can encounter. The mere thought of being bankrupt sends shivers down our spine. Its reputation makes our bank account shake in fear. Bankruptcy can cause a devastating effect on an individual’s credit score. Also, it can affect a person’s future purchases and opportunities. Knowing how to avoid bankruptcy will contribute a lot in making best decisions for your financial situation. Given the severe consequences of bankruptcy, it should be prevented by all means.
Some preventive measures to avoid bankruptcy.
Convert assets to cash
Put your assets up for sale and use the cash to pay off your debts. Don’t wait until it’s too late, ensure that you take action immediately when you realize that you are not able to make payments anymore. You can sell your recreational vehicles, furniture, electronics or jewelry. You can also adjust your spending by moving into a smaller house. These will help to slash your expenses and hence enable you to pay off the debts.
Prioritize your debts
Prioritizing your debts will help to pay for the absolute necessities. Give priority to the debts with the highest interest rates. The debt won’t be eliminated if it’s not paid off. This will help in ensuring that debts with higher interest rates are settled earlier.
Negotiate with creditors
Communicate with your creditors as soon as possible and inform them of your financial status. Some creditors may understand your situation but in some cases, they may agree to reduce the interest rates. The creditors may also choose to reduce fees or change the payment terms. Express your willingness to settle the debt.
Seek help from family and friends
Communicate with friends and relatives to help you get out of bankruptcy by contributing some money to pay debts. It will also be necessary to put up a plan on how you are going to repay them once you have overcome the situation of bankruptcy.
Avoid services from for-profit companies that offer debt settlement.
Debt settlement services by companies may not help anything in easing your debt burden. This is because these companies negotiate with the creditors for a fee. Alternatively, it would be prudent to seek for debt management services. The services are mostly offered by non-profit organization hence it help in preventing bankruptcy.
Make real sacrifices
Making real sacrifices means cutting off unnecessary expenditure. Being able to distinguish between your wants and need will help save money and reduce debts.
These are effective ways that can help in avoiding bankruptcy.