If your finances are in trouble, filing for Chapter 7 or Chapter 13 bankruptcy can give you an opportunity to start fresh. But bankruptcy doesn’t come without repercussions, including a credit score decrease, long-term negative marks on your credit report, mandatory credit counseling, and others. That’s why, if at all possible, it’s best to avoid bankruptcy altogether.


What do you need to do to prevent yourself from needing to file for bankruptcy? Ron Lundquist, Attorney at Law, shares simple yet effective financial tips below.


Establish a Budget and Stick to It

The simplest and most effective way to avoid bankruptcy is to limit your spending by creating a monthly budget. First, you’ll need to calculate how much money you typically spend in a month. Next, you’ll need to figure out ways to cut back on that spending.


Ideally, you should try to live a lifestyle that you can afford to finance with money you already have (a.k.a cash in the bank). If you can’t seem to find a way to live an all-cash lifestyle (debit cards count too), consider downsizing. Some things you can do include:


●        Moving into a smaller house

●        Trading in your luxury vehicle for a less expensive model

●        Cut back on meals and drinks outside the home

●        Reduce unnecessary spending on things like apparel, accessories, grooming, subscriptions, etc.

●        Cut back on vacation spending


You don’t have to eliminate all expenses outside of your most basic necessities, but it’s never a bad idea to curtail unnecessary spending. If you’re really struggling to pay your bills, however, eliminating almost all unnecessary spending, even it’s temporary, can help you get your finances back under control. 


Generate More Income

If you’re not currently making enough money to cover all your expenses, it’s time to figure out ways to generate additional income. There are many ways you can do this, including:


●        Taking on a second or even a third part-time job

●        Selling some of your assets, like a boat, ATVs, motorcycles, etc.

●        Any high-ticket items you rarely use or don’t need


While selling your stuff might sound a bit radical and certainly might not be the most attractive option, if that’s what it takes to avoid bankruptcy, you should seriously consider it.


If you rarely use those things, do they really need to be collecting dust anyway? And is hanging on to that stuff worth a significant hit to your credit? When your finances are stable again, you can always repurchase those things. In many cases, though, people find they never really needed that stuff in the first place.


Don’t Use More Credit Than You Can Afford to Pay Back

Though using credit is the norm these days, it can be a slippery slope for many people. If you’re trying to avoid bankruptcy but you’re prone to swiping your cards without a second thought, it may time to lock those cards up for awhile. 


Paying down credit card balances without adding to them is much easier when those cards aren’t staring you down every time you open your wallet. If you really have trouble avoiding those cards, consider cutting them up.


Don’t cancel the cards as doing so will reduce your overall credit limit and immediately increase your utilization ratio. Since credit utilization accounts for around 30% of your credit score, canceling cards ultimately decreases your score.  


Consolidate Existing Debts

If you’re struggling to pay your debts, consider consolidating them. With debt consolidation, you can pay off your high-interest debts with one lower-interest loan. If you qualify for this type of loan, it can be a great strategy for managing your monthly payments and reducing the overwhelm of multiple high-interest payments.


Settle Your Debts

Many creditors will negotiate with you to settle your existing debts. This means they will reduce the amount of money you owe in return for your agreement that you’ll pay off a portion of that debt immediately.


Often, if you agree to pay a portion of the debt in a lump sum, the creditor will eliminate the remainder of the existing debt. Many creditors also extend another settlement option, reduced-fee payment plans, for debts in collection.


Considering Filing for Bankruptcy? Contact Ron Lundquist, Attorney at Law

If you’re overwhelmed by debt and considering filing for bankruptcy, get in touch with me today. As one of Minneapolis’s leading bankruptcy attorneys, I’ve been helping Twin Cities residents through the bankruptcy process for over 20 years. To learn more or schedule a free consultation, call my office today at 651-454-0007 or send me a message, and I’ll be in touch.