More people than you would imagine can suffer from debt’s numerous adverse effects. Debt is often a result of unforeseen events that you couldn’t prevent. This could involve paying for medical expenses, losing your job, or becoming permanently disabled. If you have a huge debt, you might think filing for bankruptcy is your only option.
However, depending on your case, this might not be necessary. Bankruptcy filings can significantly lower your credit score. It may appear on your credit report for as long as ten years. If you want to keep your credit score intact, here are some tips on how to avoid filing for bankruptcy.
Tips to Avoid Bankruptcy
Avoiding bankruptcy needs discipline, rigor, intelligence, or, in other words, good business practices. Here are some of the things companies should do to steer away from bankruptcy:
1. Be conservative
Don’t expect every customer to pay—plan for the worst-case scenario rather than the best-case scenario in revenue. Think positively about what the future holds. The world’s top businessmen, like Jeff Bezos and Richard Branson, are frequently thought of as adventurous risk-takers. They are willing to take risks, but they are always well-thought-out and designed to limit potential damage. For example, Branson’s Virgin conglomerate has seen its fair share of setbacks, but nothing that would force him out of the game completely.
2. Create a written business plan
Most businesses begin as very small businesses, and their founders are the only ones with any real business “plans.” Unfortunately, despite the crucial significance of having a formal business plan, many companies fail to develop one as they expand.
Every business must have a written plan that details its goals, operating budgets, capital costs, cash flow, input costs, sales techniques, tactics, and a way to measure success. Everyone in a company can see the big picture and direct their efforts toward achieving business objectives by having a plan. Companies that don’t have a plan are bound to fail since nobody knows where they’re supposed to be going.
3. Prioritize debt repayment
As previously mentioned, businesses have difficulties when they overextend. Not borrowing in the first place is the best method to avoid over-extension. The next best thing to do is to make debt repayment a top priority. When assessing your debt repayment plan, prioritize high-interest and secured debt first (such as a loan secured by a piece of equipment). Avoid unsecured debt as much as you can, especially credit card debt. Make sure you have the best possible conditions in writing for every loan or financial agreement you enter.
4. Reduce your spending
Spending less money might make it possible for you to put more of it toward paying off debt. If you want to save money, consider giving up cable, gym membership, and takeout. This may enable you to pay off your bills and avoid bankruptcy gradually. You can cut costs and put more money toward paying off debt by reevaluating your current budget or creating a new one.
5. Talk to your creditors
You can negotiate terms with some of your creditors, but you’ll need to be proactive. Admit to your creditors that you are having financial difficulties and trying to avoid filing for bankruptcy. Prove that you’re serious about paying off the debt by asking for a reduction in your monthly payment or interest rate. Many financial companies, including credit card companies, have hardship or payment assistance programs to help customers in this situation.