Managing your debt to avoid Bankruptcy

If you find yourself facing a debt, no matter what size

, it can become a very stressful and depressing experience to try and prevent the debt from escalating. Do not despair, there are ways to recover from your debt and set yourself on track to turn things around.

Firstly, you need to assess your financial situation and put all the facts in front of you. You will not know the extent of your situation until you assess your debt-to-income ratio. Another key indicator is the Net Worth Statement which is a snapshot of your current financial situation. To calculate this you will need to add up the total of all your assets and subtract you liabilities. You should keep track of this figure year to year. Your assets will include the things you own such as a house or vehicle, liquid assets such as savings accounts and any personal items that may be of value such as jewellery. Total your liabilities, such as the balance on your mortgage or other loans, credit card balance and any other debts you have. Make sure you are conservative with your estimates to give you the most accurate picture of your net worth.

Secondly, it is important that you know how credit works. Don't be fooled by the fact that you are able to make the monthly minimum repayments on loans or credit cards. Spending money each month to repay loans means that you are taking money away from other areas of your budget and preventing you from building your wealth.

Budgeting your expenses is a great way to stay on track with your spending. You can easily create your own personal spreadsheet at home using tools such as Excel. This allows you to see at a glance the money you have coming in each month and your outgoings which will reduce your disposable income. Seeing these figures in black and white can make it easier for you to know just how much you have to allocate to various non-essential expenses each month such as entertainment. You can also set yourself strict budgets for food shopping, only allowing yourself to purchase essential items and perhaps go for the cheaper alternative where possible. Creating budget worksheets also shows you where unnecessary expenses may be.

Plastic bank cards and credit cards are extremely convenient however they can also be traps. It is very easy to present your card every time you want to buy something and quickly lose track of your spending. If you switch to cash, you can total your spend much more easily. Once you have worked out what your monthly or weekly entertainment budget is, for example, take out the total in cash and keep it in a safe place. Remember to take the cash with you (and leave the card at home) and then you can only spend as much as you had planned. This will help you stick to your budget.

Article Summary: If you find yourself facing a debt, no matter what size, it can become a very stressful and depressing experience to try and prevent the debt from escalating. Do not despair, there are ways to recover from your debt and set yourself on track to turn things around.

Managing your debt to avoid Bankruptcy

By: CatherineHubbard

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