Q: I’ve been struggling with debt for a long time even though I earn a decent salary. I consolidated my credit payments 2 years ago and put my credit cards away, but something always comes up and I have to use them. I’m still making payments on the consolidation loan, now I’ve got credit card debt again, and I’m just not sure what to do. A friend of mine suggested I declare bankruptcy before the collection calls start. I need some advice before I make a decision.
A: Bankruptcy is a serious step to take and worth considering carefully ahead of time. To your creditors it means that you are insolvent and unable to manage your financial affairs. Depending on how much you earn and what you own, it also means that you may be required to pay a lot more into your bankruptcy estate over and above the fees payable to your trustee.
Think About Why You Are in Debt
While bankruptcy is a legal process, in place to eliminate debts included in bankruptcy, it doesn’t address the issues of why the debt occurred in the first place. When you applied for your consolidation loan 2 years ago, these issues were likely already around back then. Now, before you can decide what you need to do to get your financial life back on track, think about why you continue to struggle with debt.
Ask yourself these questions and consider your answers honestly:
- Are you using a monthly budget to manage your income and expenses?
- Do you set money aside in savings for emergencies, seasonal/annual expenses?
- Do you have specific financial goals with time lines to achieve them?
- What are the non-financial issues that have contributed to your situation?
Learn How to Manage Money Better
Many people struggle with debt because they never developed good money skills and strange as it sounds, do not have a good relationship with money. Credit then masks these problems temporarily. Dealing with the deeper issues and learning to master money skills will put you in control. If you need some help to get started, I encourage you to speak with someone you trust who is very good at managing money. Or, a qualified credit counsellor from an accredited non-profit credit counselling agency can explain all of your debt repayment, consolidation and bankruptcy solutions.
Deal with Debt and Avoid Money Worries
It’s never easy admitting to or dealing with something we’re not sure about. The reality is that most people feel tremendous relief once they get more information, start working through their problems and deal with debt. Getting your finances back on track will ease your stress and allow you to stop worrying. With a clear understanding of what caused your financial difficulties, you will not only be in a better position to determine the solution that’s right for you, it will be easier to avoid getting into debt again.