While you may think that bankruptcy is usually a result of bad decisions or poor financial planning, CNBC reports that medical bills are the number one reason for personal bankruptcy filings. Other common causes are job loss or suffering a major accident. In short, bankruptcy can happen to anyone. How can you see it coming? Here are five red flags of impending bankruptcy.
You Have Tapped All Your Home Equity
Home equity should be used to make major home improvements or repairs, consolidate high-interest debt or finance another major purchase such as a vacation cottage or rental property. If you’ve taken out all of your home equity and are still struggling, you no longer have the ability to recover from a major setback.
You’re Already Struggling to Pay the Minimums
According to professionals who specialize in consolidated credit in Winnipeg at Keith G. Collins Ltd., credit cards can take decades to pay off if you are only making the minimum payments. If you are having trouble making the minimums, any emergency could push you beyond your ability to repay. If you’re struggling to make your payments, consider consolidating your debt in order to retire it faster.
You’re Uninsured or Underinsured
Whether you’re skimping on homeowners’ insurance, car coverage or health insurance, one incident can drive you into bankruptcy. Even a minor accident or health issue can deplete your financial reserves or take up all of your available credit. Review your policies to make sure you’re adequately covered.
You’re Facing Foreclosure or Repossession
If you’re continually behind on your car note or mortgage payment, you could lose the asset entirely. Depending on your financial institution and the terms of your loan, it could be a catastrophic loss and devastate your credit score. If you’re struggling, contact your bank to work out a repayment plan. You can usually work out an arrangement to keep your assets.
You’re Using Payday Loans
While the occasional emergency can be remedied with a payday loan that is paid in full and retired on your next payday, be concerned if you are paying off one loan just to take out another. The fees and interest can eat up a huge portion of your paycheck and spiral your finances until it becomes unsupportable.
Bankruptcy can happen to almost anyone. These five signs are red flags you need to handle immediately to avoid bankruptcy. If you are having financial problems, drawing up a budget, taking on a second job or reducing your spending are all good strategies to stay out of bankruptcy court. The most important thing you can do is get help from a financial advisor who can map out a strategy and help you avoid bankruptcy. Once you have all the facts about where you stand financially, it is easier to make changes and improvements for the future.