When it comes to covering massive amounts of bills or finding the funds for financial emergencies, many people turn to loans, rather than filing for bankruptcy. Thanks to the negative stigmas surrounding bankruptcy, many people avoid it - and that often is to the detriment of their financial freedom.
You may think you can afford those monthly minimum payments. But when it comes down to it, can you really afford to take out more loans - or is it time to meet up with your bankruptcy attorney?
Plenty of people enter into loan agreements believing that they can make the repayments, only to discover that they're way in over their heads. After all, this kind of mistaken belief was one reason why the Great Recession bit so hard and bankruptcy filings skyrocketed: when mortgage rates shot up, homeowners began to realize that they could no longer afford their mortgages. No matter how much you're taking out, it's important to ensure that you can truly afford a loan.
So before you consider taking out a single penny, use this checklist to gauge your ability to pay back the loan - even in the case of financial hardship:
- Are you taking out a maximum amount of loans? While you may think the extra cash would be useful in case of any unforeseen financial emergencies, taking out your maximum limit can actually hurt your chances of paying back the loan. If you should encounter any financial hardships or the lender suddenly decides to up their interest rates (which can happen), you don't want to find yourself stretched beyond your means. When it comes to applying for loans, it's best to take out a conservative amount - and if that won't cover your needs, you'll need to contact your bankruptcy attorney.
- Do you have a budget in place for your loans? It's bad enough to run a household without a bona fide budget in place - add even more loan repayments on top of that, and you run the risk of digging yourself a financial hole. Figure out what your monthly payment will be before you take out the money, and configure your household budget to determine if you can make the payments. Again, if your monthly budget is already stretched, it may be time to file for bankruptcy.
By using this guide to determine if you can really afford loans, you'll have a better idea of whether to head to your lender, or to make an appointment with your bankruptcy attorney.