Guest Post – Common Financial Characteristic That Lead to Bankruptcy

For those that are in a dire financial situation, with more debt than they are able to handle, bankruptcy can be a last resort option that allows you to take care of all of the current debts that you have, while getting a fresh start. For those that file for bankruptcy, there are some typical, common financial characteristics that are seen in those that file. Typically, individuals that file for bankruptcy have either taken on debt to the point where their income to debt ratio is wildly out of balance, have lost their job or regular income, have made bad investments and been unable to meet obligations, or have simply made poor choices with their financial planning. Other times circumstances are beyond your own control, even while making all the right responsible decisions.

High Interest Debt

High interest debt is a true killer of a sound financial future. High interest debt from loans such as payday loans another short-term loans, can really come back to bite you with you are unable to pay the debt back in the agreed-upon amount of time. Some loans carry interest rates as high as 100% to 200%, and as a result can make it very difficult for families to meet all of their obligations. Avoid taking on high interest debt from short-term loans whenever you can, and never take on high interest debt if you are not positive that you will be able to pay back.

Lack Of Regular Income

Another common financial reason why many people end up filing for bankruptcy is the loss of their income. Usually, this is going to mean that you lost your job. For others, such as business owners, it can mean that your market dried up or that you were unable to continue business. Having a lack of a regular income ensures that you will not be able to meet your current debt demands, and as a result may be forced to file for bankruptcy in the end.

Lack of Financial Planning

Although this can apply to individuals in a variety of different situations, many people go bankrupt simply because they lack the financial planning skills that are required. Make sure that you have a solid understanding of the amount that you are bringing in an income, the expenses that are currently demanded of you, and what you can truly afford. If your financial planning skills are not up to par, it is recommended that you hire a professional financial planner to help you to set up achievable goals and a simple system for organization.

Liquid Funds Wrapped Up In Unsellable Assets

Another common mistake that many people make is having all of their liquidity wrapped up in unsellable assets. This means that when you have a pressing debt, you are not going to have the cash on hand that will allow you to pay off the debt, having invested in assets that are currently unsellable. This was seen a lot during the 2008 financial collapse, when many people had far too much money wrapped up in real estate, and were unable to sell the real estate to meet their debt obligations.

Payday Loans

Payday loans would also fall under the high interest loans that were mentioned earlier. Payday loans essentially allow you to get an advance on your paycheck, with the agreement that you will pay the loan back plus interest, the next time that you perceive payment. Make sure that you only take out payday loans when you are going to be able to pay the loans back in the agreed-upon amount of time, in order to avoid the interest rates and fees, which may be in excess of 150%, depending on the company.

Overspending and Credit Card Debt

Perhaps the most common reason why people going to bankruptcy, is not watching how much money they are spending on their credit card. When you are out of money, it becomes incredibly easy to make a purchase on your credit card, without taking the long-term ramifications into account. Make sure that you avoid credit card debt to the best of your ability, in order to ensure that you do not get behind.

Author Bio: Stevie Clapton works for where you can insurance related articles and free insurance quotes.

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