In the first half of 2010, personal bankruptcy filings in the U.S. totaled 770,000+ people. And, from June 2009 and June 2010, an astonishing 1.5 million bankruptcy cases were processed, a 20% rise from the previous year. Filing for bankruptcy is a difficult, emotionally draining process and a financial outcome that you should strive hard to avoid.
|flickr/cc - Wallula Junction|
1. Abusing Credit Card Balance Transfers
At times, credit card balance transfers can be a savvy financial move to consolidate and reduce the interest you pay on your credit card account. However, the continuous shuffle your credit card balance is just masking the real problem. A 0% balance transfer is appealing at the onset, but post-introductory interest rates can soar without caps and that, coupled with an improper plan to pay off the balance transfer, you can easily increase your debt to an unmanageable level.
2. Underestimating Health Care Costs
Time after time and study after study have revealed that medical bills and health care cost are the number one leading cause for personal bankruptcy in the United States. A 2007 study from Harvard researchers showed that 62% of bankruptcy were caused by medical bills, and what’s even more troubling is that 78% of those bankruptcy filers had insurance.
Unfortunately, there’s no easy way out of this potential financial pitfall. Making sure you have the proper health insurance coverage based on your family’s medical history, actually utilizing your doctor visits from any health coverage plans you have, and being proactive about your lifestyle/health choices will do wonders to negate any avoidable illnesses that can be devastating to your financial life.
3. Frequently Using Payday Loan / Payday Advances
Payday loans may seem like a convenient means to meet your financial deadlines, especially if cash is tight and you have bills coming up. But the fact of the matter is that payday loans are financial products that keep you in the poor house. The business practice takes advantage of those without access to traditional/mainstream banking services.
Thought the 29% interest on your credit card was sickeningly high? Payday loans are an entirely different beast. When the fees are factored in (e.g., $17.50 for every $100 you borrow), the interest rate for such a payday loan are a ridiculous 911% for a one-week loan, 456% for a two-week loan, and 212% for a one-month loan.
4. Spending More than You Earn
This should be rather self-explanatory. Budgeting is never fun but declaring bankruptcy is even more of a joy kill. By being careful with your expenses, you can avoid facing debts that may unexpectedly accumulate. Avoid purchasing decisions that involves thought process such as “We can always pay it off later” or “I’ll just put it on the credit card for now.” While there are other methods to quickly reach bankruptcy, spending more than you earn is an almost guaranteed method. Kick the credit habit and use only a debit card to keep you only buying what you can afford.
5. Keeping Up with the Joneses
Keeping up with conspicuous consumption can be a sure-fire way to bankruptcy. Just because your friends, family, or neighbors are buying new houses, cars, the latest gadgets and jetting off to exotic islands, does not mean you need to splurge to match. The quicker we can remove the tie of materialistic purchase with our livelihood, the happier we’ll all be. Spend your money on what’s truly important: a fun trip for the family to visit grandma; or college tuition for the kids.
Even if you’re not spurred to buy a European-made SUV because your neighbor has one, you might just be living larger than necessary. Just landed a job with a better salary? Be wise and save the extra income -- you don’t need to immediately upgrade your 1-bedroom apartment to a larger one. Even if you can afford it, stretching your dollar and living it up at times can be a detriment to your financial well-being. You can easily cross into the “spending more than you earn” zone and find yourself in financial hot water.
6. Paying for Expensive Degrees that Don’t Pay Back
Here’s the thing about student loans: even filing for bankruptcy will not wipe the slate clean. Along with certain taxes owed and child support payments, student loans are not dischargeable under United States bankruptcy laws. Though you can argue for undue hardship, the granting of this appeal is extremely rare.
Because of this, it is even more important to be savvy when taking out student loans for higher education (which many people are doing to sit out the poor job market). While the merit and earning potential of a college or graduate degree cannot be refuted, as the cost of college steadily rise through the years, more and more students are finding themselves in the troubling position of having an expensive degree, but stuck with a job that doesn’t cover of their education. Figure out what the job prospects for your major/interest may be like, and be realistic about your earning potential with your education.
7. Overindulging in Vices
Balance is life is key. A drink now and then is no big deal. There is nothing more enjoyable than having a good time with friends and family, but doing it responsibly is key. And this obviously isn’t limited to drinking. Maybe you love to visit the local poker room. Perhaps you love betting the spread whenever your favorite team plays. Or indulging in that expensive pair of shoes because you really deserve them. And of course, there are many other things that can easily fall into the “vice” category.
How we choose to live and how we spend our time will eventually affect our pocket book. If you ever worry that you’re partaking in things on the extreme end, step back, and seek help where appropriate.
Special thanks to those filling in while I am on vacation for the next couple of weeks - Article comes courtesty of Billshrink.com