They say that prevention is the best cure to any disease. Bankruptcy as we all know is the worst case scenario for people who want to achieve financial freedom. It’s like a disease that cripples us. Bankruptcy brings to mind a lot of horrible things.

In Japan, they used to commit suicide when their business has gone bankrupt. Way back during the stock market crash of 1929, bankruptcy brings to mind a frazzled man in a tuxedo shouting “I’m ruined! Ruined!” before jumping from a high building.

Nowadays, as the global financial crisis expands, more and more people are filing for bankruptcy. With bankruptcy, you can’t wave a magic wand and make all your debts disappear. If you declare bankruptcy, it appears on your credit standing for years making it difficult to obtain credit. It may even affect your employment with many companies. Got the picture on how bankruptcy can cripple us?

Always think of bankruptcy as your last resort – not an easy way to escape your creditors. You should take responsibility for your debts, and take action to avoid bankruptcy.

Budget, budget, budget. I guess I won’t repeat the word three times if it’s not important. Be frugal. Make a serious effort to live within your means. Take note that millionaires become millionaires because of their frugality skills. Good planning and budgeting will go a long way toward keeping you safe from bankruptcy.

Expect the unexpected. Good financial planning can overcome unexpected setbacks. You never know when you’ll need to go to the doctor or get your car repaired. When you make your monthly budget, set some money aside for medical bills and car maintenance so these “surprises” won’t hit you hard. Put some money into a savings account which can be used for emergencies.

Sidestep credit card trap. Make the use of your credit cards to your advantage, and not the other way around. Excessive use of credit cards contributes to most bankruptcies. Higher interest rates and extra fees kick in if you get behind. All of a sudden, you’re maxed out and only making the minimum payment when another emergency comes along.

Finance experts say that at reasonable rates and no new spending, it takes 10 to 20 years to pay off a credit card when you pay just the minimum payment. If you can’t make at least double the minimum payment, you’ve got a problem.

Stay alert as you age. Think bankruptcy is just for the young and irresponsible? Think again. The number of older people declaring bankruptcy is increasing. Older people are ending up in retirement with their finances not in order. A lot file bankruptcy because of high medical bills especially drugs that are not covered by their health insurance.

Plan well. Make sure you’ll be able to make ends meet when you stop working and your income drops suddenly. If you arrive at retirement age and haven’t retired those credit card and other debts, you simply don’t have the funds to pay them anymore. It is simply saying that as you retire from work, credit card debts should be retired by then or you will be in a big financial problem. As Robert Kiyosaki said in the Game of Money, you’re over time and sooner or later, you’ll be out of time!

Keep in touch. If you can’t pay your entire bill, do not hide from your creditors. Ignoring them now will only make it more difficult for you to deal with them later. Explain your situation honestly, and try to work out an acceptable plan. At least try to make partial payments.

Take stock of your situation. Getting close to the end of the rope? Finance expert advice to try this: Add up the debt and divide it by 48 months. If you can’t pay it off in four or five years, then there probably aren’t any good solutions. You’ve either got to reduce your expenses or increase your income – or both.

Think of some changes you can make. Maybe you can move to smaller, cheaper house, sell one of your family’s cars, or pick up a part-time job. It may sound drastic, but sometimes drastic changes are the only solution.

Ask for help. Bankruptcy may seem appealing to provide relief from the bill collectors and the worry that comes with owing money you can’t pay. But declaring bankruptcy doesn’t mean your struggles are over. Unless you rebuild life based on a sound budget and debt-free lifestyle, you’ll find yourself in another financial mess all too soon.

A good credit counselor may help you restructure your debt, negotiate with creditors, and head off a bankruptcy. But be careful about who you go to. Some who call themselves credit counselors are just glorified collection agencies.

The earlier you follow these advice, the more you can be successful on avoiding bankruptcy.

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