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Personal bankruptcy happens when an individual files for legal protection from their creditors because they can’t pay their debts. It can be both financially and emotionally draining, but it’s possible to steer clear of bankruptcy by being proactive and making some informed decisions.
Here are some effective strategies to help avoid personal bankruptcy.
1. Increase your financial literacy
Take the time to educate yourself about personal finance and managing your money. Understanding the basics of budgeting, debt management, and investing can make sound financial decisions to help avoid situations that may lead to bankruptcy.
2. Create a realistic budget
Developing a realistic budget is essential to keeping control of your finances. Make sure yours reflects your current situation. Start by listing all your sources of income and categorize your expenses into fixed (e.g., rent, utilities) and variable (e.g., groceries, entertainment). Your goal is to have your income exceed your expenses.
3. Minimize debts
High levels of debt significantly increase the risk of bankruptcy. Minimize your reliance on credit cards and other forms of debt, and be sure to pay off existing debts. Consider negotiating with creditors for reduced interest rates or alternative repayment plans.
4. Live within your means
While it’s still important to enjoy life, avoid the temptation to live beyond your means. Prioritize your financial stability; Expensive dinners or grand vacations can wait until you’re on better financial footing. Use your budget to differentiate between wants and needs — and make spending choices accordingly.
5. Diversify your income
Having a couple of sources of income can help provide more financial stability. Explore opportunities to diversify your income, such as taking on a side job, freelancing, or starting a small business.
6. Seek professional advice
If you’re struggling with debt or managing your finances, seek professional advice. A professional can help you get a clear view of your money and know where you stand. Once you have a clear view, they can provide valuable guidance to help minimize debt and build a stable and secure financial foundation.
Careful planning and informed decision-making can help reduce your risk of bankruptcy. By adopting these strategies, you may gain more control over your finances and more peace of mind.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.