More than 20,000 Australians declare bankruptcy every year. These are the people who were drowning in debt and who have found it difficult to swim up to the surface of financial freedom. Because filing for bankruptcy has some serious consequences this should not be taken lightly. We must take all measures necessary to ensure we don’t fall into the same place as those 20,000.
Learn about the reasons most people fall into debt and bankruptcy and be familiar with the measures you can take to avoid this.
Most Common Reasons
- Credit Card Debts – As credit cards are the easiest way to purchase something without really having any cash on hand, some people get carried away with this. They swipe and swipe without tracking their expenses. They buy and buy for things they can still comfortably live without. The result is getting piles of debts that are hard for them to pay. The worst case scenario is then bankruptcy. Aside from uncontrolled spending, some people may also become bankrupt when credit card interest rates increase and income remain low. This will be a problem for people who use their credit card for everyday financial transactions like paying for food and gas. Debts will quickly pile up and interest rates quickly accumulate.
- Job Loss –In today’s economic times, it’s inevitable for some companies to downsize. As a result they would need to lay off some of their employees. A sudden termination or an unavoidable resignation may also lead to job loss. Whichever of these three you may be part of, there is common denominator if things get worse financially: bankruptcy. If you’re living from pay check to pay check and you suddenly lose your job, this may be the start to a very rocky financial situation. Especially if you don’t have any money on your savings account, this will pose as a very big problem that may result to bankruptcy.
- Divorce – A separation can not only drain you emotionally, it can also exhaust you financially. If both parties are earners, they would have to deal with having only one income supporting a home after the separation. If only one party earned for the family, the other non-earner would have a difficult time living without that income supporting them. Aside from the financial issues resulting from the separation, the couple would then need to deal with legal fees associated with the divorce. Then there’s division of assets and child support. For some people all these financial obligations would be too much and this would result to bankruptcy.
- Emergencies – This may be in the form of natural calamities like floods or storms, an unfortunate death or a medical emergency. Although some people have insurance some of them don’t cover occurrences like flood. A rare disease may not also be covered by health care. These unfortunate incidents will heavily impact your finances and may push you to go bankrupt.
How to Avoid It
- Financial Planning – The key to be prepared for anything is planning. With planning you can get more control out of a situation. You can strategically prepare for possible scenarios and contingencies. With financial planning you can ensure your finances are properly allocated and you can proactively plan for any emergencies that may come.
- Emergency Fund – In planning your finances you must allocate a portion of your income for your emergency fund. This is for unforeseen circumstances that may surprise you. If you have an emergency fund, you can survive a sudden job loss and an unpredicted natural calamity. It can also provide adequate finances to help you in an event of a divorce, a sudden serious illness or an unfortunate death. This fund can help you go through the tough time without having to compromise your monthly budget.
- Easy Payment Schemes – Getting a loan is another way you can get out of a bad financial situation. When you’re stuck in a rut and need help to get you out of the unfortunate situation, a loan can help you. The important thing to remember is to carefully choose the loan to get. Don’t just get any loan you think will help your situation. Scrutinise the loan details like interests and payment schemes. You need to make sure the loan you get is manageable and is well within your means. Here at Personal Finance Co we offer personal loans with easy payment schemes. We can also give you a personal loan tailored to your needs.
In the end, it is your financial choices that dictate whether you will have financial freedom or you will be chained to debt and fall to bankruptcy. As long as you carefully scrutinise your every financial transaction and do financial planning to protect you from any unfortunate event, bankruptcy will not be part of your financial future.