Put A Freeze On Spending And Avoid Bankruptcy

2016-02-22   minute read


Many individuals wait too long to seek assistance when they are facing unmanageable debt problems. By the time they reach out to a Licensed Trustee for a consultation, they are already in a debt crisis and bankruptcy is their only way out. The good news is, bankruptcy will put a freeze on any collection activity along with the growing debt. However, bankruptcy should be treated like a last resort. In order to avoid a bankruptcy the best thing to do is put a freeze on your spending.

There are several warning signs when financial problems are present. In order to avoid bankruptcy the trick is recognizing the more common warning signs before you reach a point where the situation has become critical. These could include not having a savings or emergency fund, spending all your money before the next pay day, not having a full understanding of your real monthly expenses and using credit to pay for basic living costs- like gas or groceries. If this sounds like your situation, don’t wait until bankruptcy becomes your only option. Start changing the way you manage your money today.

Stop and take stock of your finances

The first step in avoiding bankruptcy is to complete a financial assessment of your income, expenses and spending patterns. This step must include a hard look at the debt you have accumulated, the cost of carrying that debt each month and the length of time it will take to pay the debt off completely with interest charges. During the time it takes to figure out all of this information do not commit to any further expenditures.

Once you determine how much money you are spending each month, both on living expenses and debt repayment, the next step is see if there are any areas you can cut back or eliminate expenses. This could include seeking out parks and libraries for recreation and entertainment needs or even visiting consignment shops for your clothing requirements. The goal is to free up as much money as you can to start simultaneously contributing to an emergency fund and paying down your debt.

Stop the debt and start saving

It is a natural instinct to want to put all your available money towards debt repayment to get out of debt as quickly as possible. The problem is that if anything comes up outside of your monthly budget while you are trying pay down your debt you will not have the funds available to cover that surprise cost. This can mean once again turning to credit to pay for your expenses which will undo all of the progress you have made. Instead, make a plan that allows you to put some money aside for emergencies and the rest towards paying the debt, even if it takes a little longer to pay the debt off.

Once you see how much you have to work with after freezing your spending you can then look again at the debt repayment calculators to start to figure out how long it will take you to pay off each of your creditors with the amount of money you have to work with each month. During this time period, you must commit to freeze your use of credit completely. If you continue to use credit, then your plan to get out of debt could ultimately fail, despite your efforts or objectives.

When to seek out professional help

After completing this exercise sometimes there is still a need to seek out the help of a debt advisor to see if there are alternatives to bankruptcy available to your unique situation. Some examples of when this might be necessary include:

  • You have already cut costs and can’t free up enough money to properly service your debt and contribute to savings;
  • The length of time it will take to pay down your debt is unreasonable considering your age and life situation;
  • The debt that you have accumulated is already behind to the point where your assets or wages are in jeopardy.

While Licensed Insolvency Trustee’s main role is to administer bankruptcies they will always seek out alternatives should you qualify. Many of these alternatives can help you freeze your spending, freeze your debt and watch it melt away.

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