It is crucial to understand how much money you have coming in and going out each month. This will help you to eliminate unnecessary spending.
Cutting expenses is an effective way to free up money to pay down debt. This may include reducing subscriptions, memberships and other frequent spending habits.
- Create a list of your expenses.
When you are trying to avoid bankruptcy, the first thing to do is create a list of your expenses. This can be done by looking at bank and credit card statements to find out how much you spend each month. Once you have a list of your expenses, you can determine whether your projected income is enough to cover all of your bills and savings goals.
Next, you should cut out unnecessary spending. This means no more streaming services, gym memberships, dining out, new phones and vacations until you have balanced your debt situation. Buy generic groceries and drink tap water to decrease costs on bottled water. Plan meals using a single protein to minimize food spending.
If you still don’t have enough money to cover your expenses, consider working a second job or finding ways to increase passive income through your hidden talents and skills. You could also look into a debt consolidation loan to lower your interest rates and monthly payments.
- Break down your expenses into fixed and variable.
The first step to avoiding bankruptcy is to separate your expenses into fixed and variable. This will help you figure out your budget and how much you can spend each month. Fixed expenses are those that stay the same each month such as your rent or mortgage, phone and internet bill, car payments and utilities.
Variable expenses are those that change each month such as grocery shopping, eating out and gifts. You can estimate how much you spend on these items by looking at past bank or credit card statements.
It is important to cut back on your variable expenses as much as possible. This will help you save money and free up funds to funnel toward debt payments. It can also be helpful to have an emergency savings fund to cover unexpected expenses that pop up from time to time. These include car repairs, medical bills and unforeseen emergencies. These can be more difficult to plan for but are necessary to avoid bankruptcy.
- Set a budget.
Drastic times call for drastic measures, and you should cut out all frills until your finances are back in order. This means no more streaming services, no cable, no
huge cell phone plans, no dining out, and no vacations until you are out of debt. Also, set up savings for retirement and emergencies. Roughly 10 to 15 percent of each paycheck should go toward these savings.
If you’re spending more than you’re making, it may be time to get a second job or start an entrepreneurial venture to bring in extra cash. However, you must be sure to put any additional income toward paying down your debt.
If you’re still struggling to balance your budget, seek credit counseling. A credit counselor can help you work out a debt management plan where you make one monthly payment to pay off your debts over a three-to-five year period. A bankruptcy lawyer in Harrisburg PA can help you with the legal aspects of bankruptcy. This can ease the stress of living with unmanageable debt and prevent bankruptcy.
- Pay your bills on time.
While unexpected expenses, a sudden job loss or other financial disaster can put anyone in a precarious situation, it’s important to remember that you can also get into trouble by spending more than you make. Budgeting is the best way to ensure that your income exceeds your expenses.
Paying your bills on time is a key part of creating and maintaining a healthy budget. To avoid missing payments, write down the dates that your bills are due and put them on a calendar or list. Alternatively, you could set a reminder on your phone. Make on-time bill payments a habit and avoid those punishing late fees!
Cutting down on nonessential expenses can free up money in your budget to help you pay your debts. Look for ways to cut back on things like cable TV, gym memberships and eating out. Even small changes can add up over time to make a big difference. If you’re struggling to stay on track with your debt repayments, seek financial advice from a nonprofit credit counselor. They can review your finances and help you find a debt relief option, such as a debt management plan or consumer proposal.
