What do you do when you are in a deep financial hole?  Thousands of Canadians declare bankruptcy every year because they can’t pay their debts.  From 1990 to 2011 consumer bankruptcies increased from 42,782 to 77,993.  That’s a whopping increase of 121.5%.

Declaring Bankruptcy

Past mistakes aren’t easily fixable but there are ways to climb out of the hole if you’re willing to do the work.  Declaring bankruptcy should be your last resort.  Here’s why:

Obviously some people just don’t earn enough money – whether you have been downsized, are underemployed, or unskilled.

If you’re frugal you can raise a family on a relatively low income, but frugality has its limits.  If your debts are high it makes sense to pour your energy into making more money rather than just packing your lunch.

A temporary second job or money making hobby can allow you to direct funds to debt repayment.

Sometimes people deceive themselves about their spending habits.  Keeping a detailed log of where and what you are spending will point out the money leaks.

Many people balk at preparing a budget, but it’s the only way you can keep track of your money.  It doesn’t have to be elaborate.  Sometimes just having general categories with spending guidelines can be enough, but you have to stick with it.

Improper use of credit cards is a primary cause of financial trouble.  Studies have shown that people spend almost 25% more, on average, when they pay with a credit card rather than with cash.

Having too many credit cards, making only minimum payments, spending more when funds become available and accepting increased credit limits can quickly spiral out of control.  Those is desperate circumstances should stop using their credit cards altogether.

Related: Best Balance Transfer Credit Cards

Simply over-spending is another concern.  Whether it’s buying the latest electronics, too much house, a new car/furniture/wardrobe every few years, regular restaurant meals, long distance calls, gifts for their loved ones, or any other item that is simply a “must have”, if you can’t afford it – you don’t need it.

Some people don’t plan for any changes in their lives.  Couples can base their debt load on two incomes but can’t handle it when they have children and expenses increase while income decreases.

You can’t presume you’ll always earn the same amount, or receive regular increases or bonuses, or even stay at your job.

Some people marry spendthrifts.  Money is the most divisive issue in marriage and it certainly is not unromantic to note spending habits and discuss financial goals before marriage.  If you are already married it’s more difficult to convert the over spender, but not impossible.

Divorce is not only a huge emotional setback; it is often one of the largest financial setbacks a person can experience.  It’s costly to maintain two households and legal fees are enormous.

While sometimes divorce is the best alternative it’s often worth the effort to get couples counseling to make the marriage work.

Many people don’t carry enough insurance.  An accident or sudden illness or disability can result in huge medical bills as well as the inability to continue working.

Related: Why You Should Protect Your Earnings With Disability Insurance

We always hear on the news stories of families losing all their possessions in a house fire.  Budgets should be reworked to include inexpensive, bare bones insurance policies for disability, prescription and dental, and household contents.  It’s much better than no insurance at all.

Often people don’t take responsibility for their situation and are unwilling to resort to extreme measures.  They think that declaring bankruptcy is the easy way to wipe out their debts.

A bankruptcy stays on your credit bureau file for six years after discharge.  This is long enough to get back into trouble again.

Most financial problems are due to poor decisions and a failure to plan ahead.  If they can’t own up to past mistakes it’s unlikely people will change their behavior in the future.  It’s not uncommon for some people to declare bankruptcy for a second or even third time.

Multiple bankruptcies stay on your file for 14 years.

Instead of blaming a spouse, the economy or unexpected bills, be honest with yourself and take the necessary steps to pull yourself out of debt.

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