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How to manage debts avoiding bankruptcy

July 15th, 2007 by Shenron

Bankruptcy usually occurs when an individual has failed to manage his finances properly. When deadlines for paying debtors are continuously not met and interests for debts build up, the pressure to pay intensifies, which could lead them to take the last resort â€“ filing for bankruptcy.

Bankruptcy, although allowing an honest debtor to start afresh, does have its negative connotations. Since you are ranked according to your credit rating, your inability to pay your creditors on time will definitely injure your credit rating. This, in turn, will affect your future transactions. This legal measure should therefore be taken only as a last resort â€“ when all other possible actions have been considered but have been found unsatisfactory.

Successful businessmen have stayed away from bankruptcy because of their ability to manage their finances properly. Here are a few financial advices to prevent bankruptcy:

Spend only according to your means.

Most debtors acquire a lot of liabilities because they spend too much â€“ way beyond what they are getting. If it is necessary for you to have a debt â€“ a car loan or a house loan for example â€“ consider beforehand your other expenses and the income youâ€™ll be getting. Donâ€™t try to overestimate your income and make allowance for instances wherein the income may fall short of the average.

Set a maximum on debts that you acquire.

Limit yourself by setting a ceiling on the debts that you acquire. If youâ€™re using your credit card for example, set only a certain amount that you can spend and set a pace wherein you can pay and withdraw in between periods. If you have enough debts and youâ€™re having a difficult time handling them, do not accumulate another set of debts.

Set aside an amount for payment every month.

You can set aside an amount that will take care of your debts every month. Rank your expenses according to priority and pay off that which needs to be paid off first. Remember to pay your debts on time as failure to do so increase the interest on the debt.

Settle debts and other matters personally with creditors.

Especially when youâ€™re in the verge of insolvency, personal discussion with creditors is one of the best ways to reduce disputes. You can sign promissory notes and waivers just to assure them that you wonâ€™t run away from them. One of the most common mistakes that debtors make is to hide from their creditors, which could increase their misgivings on your ability to pay them back. Prevent harassment and abuse from creditors by talking to them and asking for a little consideration. Be sure to stick to your promises however because your inability to do so just might lead to your downfall.

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