When many people consider bankruptcy, they often believe that it is akin to the “Get Out of Jail Free” card in Monopoly. While there are many valid reasons to consider declaring personal bankruptcy, it is also important to understand the ramifications of doing so. Those in Kentucky considering this path may want to consider some tips that can assist them in placing themselves in the best financial position prior to seeking bankruptcy protection.

The first and probably most important aspect is to develop and adhere to a budget. If someone isn’t fully aware of where they are spending their money, it generally leads to overspending and the inability to pay for important bills. Secondly, while keeping a check on spending is important, it can be equally as essential to put at least 10 percent of earnings into savings. This can allow a cushion if certain unexpected expenses occur.

Third, a reliance on credit cards can be financially detrimental. Most credit cards have interest rates of over 20 percent, and can result in a tremendous debt within a short amount of time. Credit cards can be a convenient way to purchase larger-ticket items, but the general rule is to not charge items that cannot be paid off within a month, or two at the most.

Fourth, it may be beneficial to get rid of expenses that are a drain on finances, such as a car or home that constantly needs repair. After evaluation, it may be better to cut the losses and seek more affordable options. Finally, there are ways to negotiate existing debt. Working with credit card companies and banks to find better rates or options could assist in quickly reducing the total debts owed.

While these simple tips are ways to help a person reach financial solvency, there are some cases that may require further options, such as bankruptcy. Even if a person in Kentucky is committed to restructuring debt and making financial changes, it could be beneficial to speak with a personal bankruptcy attorney about his or her situation. This type of attorney can advise the best ways  to achieve financial freedom once again.

Source: fool.com, “Your 5-Point Checklist for Avoiding Bankruptcy”, Maurie Backman, Aug. 21, 2016