If you’re like most people, you like to shop, you get sick sometimes, maybe went to college, and spend money that you don’t have. What is the common denominator here? Debt.
According to the New York Federal Reserve, American consumer debt has peaked at over $14 trillion. That number includes everything from student loan debt to medical debt. Granted, certain situations happen that you have no control over, for instance, a cancer diagnosis that leaves you with thousands of dollars in medical debt. But what about the situations you have full control over but choose to go into debt anyway? Like credit card debt?
It all goes back to knowing better but still not doing better. You know when you go to the mall that you shouldn’t buy those $200 Nine West pumps, but they would go perfect with a dress you bought a few weeks ago… It’s that type of thinking that gets most people in a world of debt;
Now, having bad money habits isn’t an end of the world for anyone, there are many ways to get yourself out of debt. But when you have high debt beyond “cutting back” and consolidation, that’s when you’re going to have to get expert legal advice from an attorney to file for bankruptcy:
Bankruptcy: End All or Financial Savior?
For so long, bankruptcy has gotten a bad rap. And for what? Because it lowers your credit score? Becomes a public record? All too often, when people are considering bankruptcy, they forget that yes it may lower your credit score but the amount of debt you’re in already lowered it. At least with a bankruptcy, you’re given a fresh financial start with the opportunity to raise your credit score back up.
Whether you file a chapter 7 or chapter 13 bankruptcy, you’re still going to have a better financial outcome than you would if you try to pay off your high debt on your own. The biggest takeaway with filing bankruptcy is the lesson learned after coming out of it. If you’re going to file bankruptcy and then get right back into debt, why file in the first place?
The only way bankruptcy is going to be beneficial to you and your financial situation is if you learn better financial habits from it. If you’re considering filing or have just come out of bankruptcy, here are a few good financial habits to have to bounce back.
Create a Budget
9 times out of 10, the reason you had to file bankruptcy in the first place is that you didn’t have a budget or never seriously kept track of your spending. And this is okay because if bankruptcy teaches you anything, it teaches you to not make the same mistakes, and managing your money is a great first step in the right direction.
Creating a budget is actually much simpler than you might think.
There are online apps to help you or you can use a standard spreadsheet. It’s simply a matter of calculating your fixed expenses (mortgage, rent, car note, etc.) and making sure you have enough income to cover them. Then add up your miscellaneous expenses (food/entertainment) and see if you have enough to cover that with the remaining funds after paying your fixed expenses. If you fall short, it will be time to start cutting back on certain things.
Use Cash Only (Temporarily)
In this day and age, credit is king, especially when you get ready to make large purchases like a car or a home, so you don’t want to stop building credit completely; you just have to use it wisely. But until then, freshly coming out of bankruptcy, cash is going to be your best friend.
Having a small amount of cash on you will prevent you from swiping your debit card so much and help you to create mental boundaries of what you can and can’t buy based on the amount of cash you have on hand.
Pay Your Bills On Time
Did you know that on-time payments make up a little over 30% of your credit score? That’s why it’s so important to do your best to make on-time payments with every bill you have. Granted, coming out of bankruptcy, you’re not going to immediately be eligible for loans or lines of credit, but once you are, consider getting a secured credit card and setting up automatic draft payments so that every payment will be on time.
Filing for bankruptcy can be a difficult decision to make but it’s an opportunity to have a fresh financial start and make smarter financial decisions. After coming out of bankruptcy, if you apply these good financial habits, you’ll be well on your way to smarter spending and building better credit habits.
*Photo by Karolina Grabowska