If you’re buried in debt, if you don’t have a reliable stream of income, or if you otherwise feel like you’re in an impossible situation, it may feel like there’s no hope for you. But even the worst financial situations are recoverable with the right strategies.
What steps should you follow to get out of this deep financial pit?
Consider Filing for Bankruptcy
For many people in this type of situation, filing for bankruptcy is the right solution. If you hire a bankruptcy attorney, they can help you understand the bankruptcy process and choose the right type of bankruptcy for your needs.
There are a few main types of bankruptcy, each of which has advantages, disadvantages, and special considerations. For example, in some types of bankruptcy, you’ll discharge your existing debt. In others, you’ll merely reorganize your debts to make them more affordable.
Bankruptcy isn’t always the right move, but it could be exactly what you need to move forward with your life. It comes with some consequences, but it functions as a practical fresh start.
Create a Strong Financial Foundation
Regardless of whether or not you choose to file for bankruptcy, it’s important to take the time and make the effort to create a strong financial foundation. These are the most important steps of that process:
· Set goals. You’ll be much more successful if you proactively set goals for yourself. Make those goals specific and achievable, so they are challenging and capable of functioning as measures of progress. Your goals don’t have to be especially lofty or ambitious, but they should give you a guiding direction toward a brighter financial future. For example, you may set the goal of eliminating a certain amount of debt or saving a certain amount of money.
· Create a strict budget. Next, create a strict budget for yourself. Appropriately account for all your income and all your expenses, then design a spending plan that allows you to cover all your expenses with some money left over. At this stage, your budget doesn’t have to be perfect, but it should give you a reasonable start. As you gain more experience in financial management, you’ll be able to make tweaks to make your budget more effective.
· Increase your income (if you can). After that, focus on increasing your income. There are many ways you can do this, so you should have plenty of options. Depending on your unique situation, it might make sense to work for a promotion or a raise, change your line of work, or adopt side gigs and investments that allow you to make extra money on the side. In any case, you should be capable of increasing the total amount of money you have coming in.
· Decrease your expenses. It’s also a good idea to focus on the other side of the equation, decreasing your expenses. If you’re willing to make big changes, consider moving to a cheaper area or making a similarly large lifestyle adjustment. Otherwise, you can save money by doing things like taking the bus, cutting out entertainment expenses, and cooking at home instead of eating out. Each of these actions saves a small amount of money, but it adds up.
· Save an emergency fund. An emergency fund is a collection of funds you can use to cover emergency expenses, like medical bills or car repairs. Everyone should have at least a few months of expenses set aside for these anomalies, so they don’t have to rely on credit cards or other forms of debt accumulation. If you increase your income, decrease your expenses, add meeting your budget, you should be able to eventually accumulate an emergency fund.
Chip Away at Your Debt
With all those fundamentals in place, your next priority should be chipping away at your existing debt, assuming it still exists. Debt is especially harmful to your financial future because of the role that compound interest can play. If left alone, compound interest can quickly snowball the amount of principal you owe. But if you make a concentrated effort to pay that principal down, it’s only a matter of time before you find yourself debt free.
Increase Your Savings (and Invest)
Once all your high interest debt is eliminated, you can use the extra money you save each month to increase your total savings and start investing. There are many assets you can invest in, including stocks, bonds, real estate, commodities, and more. Investing is a complicated subject far too complex to reduce here, but suffice it to say, investing your extra savings can significantly pay off, especially over time.
If you don’t have much experience in finance or economics, it may feel impossible to crawl out of a financially disastrous position. But there is always hope and there is always a way forward if you’re willing to make the right moves.
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Eamon