Debt has a tendency to sneak up on you.
You open a new credit card account and tell yourself you'll pay off the balance each month. You raid your 401k and promise yourself you'll pay it back when you get that windfall you've been waiting for. You make a late payment or find yourself taking out a payday loan "just this once."
Individually, these financial decisions may seem pretty harmless. But the problem is that they can add up quickly - and the trouble they cause has a way of multiplying.
Before you know it, you're paying late fees, bank penalties and higher interest rates on top of your existing debt. Throw in some unexpected hardships - say, car repairs, medical costs or job loss - and pretty soon you're swimming in a swell of debts threatening to pull you under. Sound familiar?
When debt has spiraled far beyond your control, personal bankruptcy is often the fastest and most effective way to regain power over your finances. Filing for Chapter 7 bankruptcy can eliminate unsecured debts entirely. Chapter 13 bankruptcy can reduce debt, set up a realistic payment schedule for remaining debts, and stop foreclosure.
Of course, if you can recognize that you're on track for financial disaster early on, it may be possible to reverse course before drastic measures like bankruptcy are needed.
Here are some signs you're headed for a financial meltdown.
Late payments have become the norm
When you're low on funds, it can be tempting to put off a payment. After all, you can just get current again next month, right? Unfortunately, it's never as easy as it sounds.
If you're struggling to pay a bill this month, how will you manage next month when your bill includes a hefty late fee? One missed payment can quickly turn into two or three - and soon enough your credit score plummets and your interest rate jumps. But the biggest concern about missed payments is what they denote: that your debts are running your life.
You're juggling credit cards
Credit cards can come in handy when you need to build credit or make a purchase without cash. But plastic goes from helpful to harmful fast when you start relying on credit cards to make purchases with money you don't have.
If you're unable to pay off your balance in full, it's a sign you have more credit card debt than you can manage. Making minimum payments allows debt to grow unchecked, even if you stop using your card - leading to larger minimums and higher rates. If you're paying the smallest amount possible or transferring your balance to new cards, you're only putting off the inevitable. All it takes is one costly month to completely derail your finances.
Your finances are straining your relationships
It's normal to occasionally disagree about debt. But when you're constantly fighting over money, it's a sign you're living beyond your means.
Financial stress takes a toll on every aspect of your life. When you worry every phone call could be a bill collector and you're never sure if you'll be able to afford your next payment, you're living in a state of fear and instability that can impact performance at work, your relationships with family and even how you feel about yourself.
There's a reason having too much debt is a top cause of both depression and divorce. Bankruptcy can not only help you regain control of your finances; it can help you regain your relationships and your sanity.
You're paying overdraft fees
Everyone makes mistakes now and then. But if you're consistently overdrawing on your checking account, it's a sure sign your expenses are out of line with your income.
When you're teetering on the brink of being broke, overdraft fees are often the last straw. If you find yourself unable to stay in the black, filing for bankruptcy can stop fees from accumulating and provide the breathing room you need to build up a cash cushion.
You're not saving money
Saving is the key to financial freedom. Maintaining a stash of savings will keep you afloat amid a financial emergency and ensure that you can actually afford to retire. Yet savings is one of the first places people cut when money gets tight.
If you're not setting any of your paycheck aside - or, worse, if you're robbing your own retirement funds - your debt is setting you up for financial ruin. Getting rid of debt with bankruptcy can free up more money for today and for the future.
The earlier you recognize your finances are in trouble, the easier it will be to make the changes necessary to get yourself back on track. But if you're in over your head, there's no shame in asking for help. When debt is disrupting your life, bankruptcy can be your ticket back to financial stability - and peace of mind.
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