You may know of someone who filed for bankruptcy because they felt they had no other choice. This is in fact how millions of people feel; when creditors are calling and final notices are coming in the mail, it can seem like a way to get instant relief. And oftentimes, it does just that; the calls to creditors stop, there is no more threatening mail to worry about, and individuals can begin to pay down debt.

But the road to bankruptcy isn’t a short one; oftentimes, it can take months or even years to reach that point. Are there any signs which can point to potential steps that can be taken to avoid it? Absolutely.

Understand How Bankruptcy Will Impact Your Finances

While many do look forward to the freedom that it can bring, there are many caveats that should be considered before filing. First of all, if you value your credit rating, you should know that bankruptcy can have a significant negative impact. Not only that, but it can be up to a decade before the negative entry on your credit rating is erased.

Your property can be affected by it as well. You may not be allowed by law to keep certain assets if you file. And contrary to popular belief, filing for bankruptcy may not eliminate all of your debt. Any student loans, back taxes or child support you owe will not be eliminated by filing. If your job requires security clearance of some sort, it may affect this clearance unless you notify your employer. Finally, you may not be able to get new credit or another loan if you have filed. In fact, if may take up to 5 years if you wish to qualify for a secured loan.

Common Signs That Your Finances Are Being Negatively Impacted

There are a few ways to tell if your finances are heading in a downward spiral. Looking at your bank accounts is a good place to start, specifically, your expenses. Are you spending more than you are earning each month? If this is the case over several months, it may be time to decrease your spending. If you notice that some of your bills are going unpaid, or that you have to borrow money from other accounts in order to meet your financial obligations, adjustments will almost certainly need to be made. Trouble is also likely afoot if you are getting phone calls from your creditors. This too is a big red flag of possible future trouble.

Actions You Can Take

In addition to looking at your bank accounts and monitoring your activity, there are several things you can do to get your finances under control and avoid being bankrupt One of these things is to create a budget. There are several ways to do so. One of the simplest is to ensure that no more than 30% of your net income each month is used for entertainment or similar extra expenses, and never go over that amount.

Know Your Income

Know exactly how much money is coming out of your account for various bill payments each month, and put this amount against your total income. If you find you aren’t making enough to cover your expenses, then it might be a good idea to see if you can reduce those expenses. Do you subscribe to a cable television package with many channels that you don’t watch? Cutting this particular expense can save you a significant amount of money each month that you can put toward paying down your bills.

Counseling for Credit Card Debt

If you have a lot of credit card debt, consider consolidation. Credit counselling services are a good idea if this is the case. You may be able to get free help if you fall into a particular income bracket. A credit counseling firm can communicate with your creditors and initiate bill consolidation so that you only have to pay one amount per month.

The Value of Prevention

If you have yet to be in financial trouble, but are worried about going down that slippery slope, prevention is the best way to never have to face bankruptcy. And the easiest form of prevention is simply to live within, or under, your means. This may take some discipline if you are used to being able to spend money as you wish. However, the alternative is far less desirable.

Budgeting is the best way to know where you stand financially each month. When you know, you can be better prepared for financial emergencies, as well as be on top of how much you can spend on those extras like going out for dinner or attending a concert.

Remain Hopeful

Staying positive about your financial situation is absolutely crucial if you wish to prevent financial trouble or avoid it. Just because you are having issues financially, this does not mean that it is imminent. There are many solutions available to reverse your negative financial situation, including learning how to better manage your money and improve your relationship with those to whom you owe money.