Even though you may decide to try and ‘wipe the slate clean’ with bankruptcy, failure to address the causes that got you there in the first place will likely result in your finding yourself in a similar predicament in the not too distant future. The following strategies will assist you both in paying down your existing debt (should you decide to opt for a formal or informal agreement with your creditors) as well as preventing you from making the same mistakes in the future.

1. Build and maintain a budget

A budget will help you see where every dollar you make goes. Once you understand how your money is spent, you can identify ways to reduce your expenses and allocate excess funds to savings and debt repayment. By having a financial road map each month, you can navigate to a sound financial future.

How Do I Build My First Budget?

Building a budget has become very simple in the technological age. While you can still manually create one with pen and paper, there are a variety of web sites that offer free budget forms and applications to help you design your first budget. Regardless of what platform you use, a budget has a few standard procedures you must follow.

  1. Compute your monthly income- Take into account all sources of income you have to create your income figure. Use monthly income to create a monthly budget because it allows more flexibility from month-to-month. Creating a detailed year long budget would be difficult and not very helpful.
  2. Collect your monthly bills and receipts- Certain expenses, such as rent, mortgage payments, and phone/internet service will stay relatively the same each month. However, you may need to collect receipts from the past few weeks to estimate how much you may spend on food, clothing, and gas for the next month.
  3. Adjust your expenses to fit your income- For some people, the list of expenses may exceed the income. In this case, it is important to evaluate which expenses can be cut or decreased. For example, your various monthly debt payments may be decreased if you consolidate your debts.
  4. Allow for saving- After matching your expenses to your income, you can continue by allocating a portion or your income to savings.  This allocation of your income to savings will put you on the right track financially and allow you to retire with money in the bank.

Remember that every expense you incur needs to be included in your budget. You will never be able to manage your money if you do not know where it is! Also, by identifying your expenses, you can find ways to reduce your expenses and move more money to the saving/investing category. Don’t forget that almost every expense, even seemingly “fixed” expenses, can be reduced.

2. Surround yourself with competent financial professionals

A good financial planner, accountant, and solicitor are crucial to maintaining healthy finances. Don’t be afraid to ’shop around’, and make sure you ask the right questions – like what kind of experience they have. It’s not unreasonable to ask them things of a ‘personal’ nature – after all, if you are going to trust them with your financial affairs, it’s only natural that you should know exactly who you are dealing with.

Some key questions to ask are:

  • What are the provider’s qualifications? Do they have specialized training or certifications?
  • How easy is it to get in contact with them? Will they develop an ongoing relationship with you and work with your personally?
  • Are there references or remarks from previous or current clients?
  • What is there rate of client turnover? A provider that has no long term clients should set off alarm bells.

And most importantly – trust your instincts. If you have a bad feeling about someone, take your business elsewhere.

3. Consider enrolling the services of a Debt Consolidation company

Debt consolidation is essentially the process of rolling all your debts into a single package. Rather than making half a dozen separate payments to half a dozen different lenders, you can package all of your smaller repayments into 0ne moderately sized one.

Apart from the obvious organizational advantages to this methodology, you may also be able to improve your overall interest rate, as a good debt consolidation company will negotiate with creditors on your behalf.