9 Ways to go bankrupt

View as an article It may seem obvious, but anyone who constantly spends more than they make will file for bankruptcy in no time – but there are other ways to go broke. Here, we'll explore 9 habits that can put you in the poor house. It may seem obvious, but anyone who continually spends more than they make will file for bankruptcy in no time – but there are other ways to go broke. Here we will examine 9 habits that can put you in the poor house.

Getting too many credit cards

Credit card abuse is one of the leading causes of consumer debt. After getting an initial credit card, you may find that they multiply quickly. Soon your wallet will hold a card for every business you've ever been to. The general consensus is that credit cards are necessary to get a better credit score, but unfortunately 20 credit cards won't give you a credit score 20 times better. Also, these cards contribute to the temptation to buy unnecessary things that would otherwise be unaffordable. This will inevitably lead to a financial situation. For more information, see controlling your credit cards.

Pay off credit debt with credit cards

Most people who own a credit card get offers from competing credit card companies or banks for a balance transfer with introductory rates as low as 0%. All this will extend the deadline for payment on your bill and put you in a worse situation where you can take on even more debt. In addition, most balance transfers transfer fees, and their low introductory rate will often skyrocket after a few months. That new interest rate could be much higher than on the original card. For more, see Expert tips for cutting credit card debt and 6 top credit card mistakes.

Buying too much house

When it comes to buying a home, bigger is not always better. In addition to mortgages, taxes, maintenance and utilities will take up a significant portion of your monthly budget, and homeowners who buy more house than they can afford can quickly become overwhelmed. In addition, certain types of mortgages, such as adjustable-rate mortgages (ARMs), allow homeowners to buy an expensive home with lower mortgage payments for a period of time. However, when short-term interest rates rise, homeowners with ARMs feel the pressure as lenders raise their rates. For more, see Armed And Dangerous and American Dream or Mortgage Nightmare?

Putting all your eggs in one basket

Another way to lose your money is to put all your eggs in one basket by investing in one company or industry. For example, if your portfolio holds only airline stocks and it is publicly announced that all airline pilots are going on an indefinite strike and all flights will be canceled, airline stock prices will drop. Your portfolio value will drop significantly. However, if you are out of other forms of transportation, such as z. B. Trains, divide into stocks, you will notice a less noticeable decrease. Investing in stocks of companies in different sectors reduces your risk even more. For more information, see The Importance of Diversification.

Don't build up an emergency fund

Living on the edge can mean filling your life with exciting (and sometimes dangerous) activities like surfing and skydiving, or being on the brink of bankruptcy. Losing your job means you'll be evicted from your home, default on your mortgage, or have your utilities shut off, you're living too close to the edge. Keeping three to six months of income in the bank so you have it when you need it is a great way to give yourself some breathing room when your paychecks temporarily stop coming in. To get started, read Build Yourself A Emergency Fund and Live Close to the Edge?

Ignoring identity theft tactics

According to the Federal Trade Commission, about 10 million Americans are victims of identity theft each year. You can protect your credit rating and your finances by learning about identity theft and protecting your personal information. For example, shredding documents that contain Social Security numbers, bank account numbers and other personal information prevents would-be thieves from obtaining your information by picking up dumpsters. Learn how the perpetrators do it in identity theft: How to Avoid It.

Getting a divorce

Prior to April 2005, bankruptcy was often used during divorce proceedings by a former spouse who wanted to avoid alimony and other family obligations. In April 2005, President George W. Bush signed into law the Bank Abuse Prevention and Control Act of 2005 (BAPCPA). The BAPCPA limits bankruptcy violations by classifying divorce, separation and domestic support obligations as non-dischargeable debts. However, for divorce cases that can't adjust to a single income, bankruptcy is still an option if certain conditions are met. For more information, see Changing the Bankruptcy Factor.

Unable to address your current financial situation

The worst thing you need to do when faced with mounting debt is to ignore the situation completely. When debt collectors call you, negotiate with them instead of avoiding their calls. Even if you owe a lot, a creditor often settles for something, not nothing.

Using risky short sale strategies

Short selling can be a risky investment strategy with limited gains and potentially unlimited losses. The riskiest short selling position is the short seller; however, in 2007, the Securities and Exchange Commission (SEC) amended Regulation SHO to limit short selling by closing loopholes that existed for some brokers/dealers. Regulation T requires investors to hold 150% of the value of the short position in a margin account at the time of the short sale. Funds held in the margin account serve as collateral should the price of the stock underlying the short position skyrocket instead of fall. For more information, see our short selling tutorial.

Avoid bankruptcy

Most financial experts strongly recommend that clients in financial distress do everything in their power to avoid bankruptcy filings. The impact of this action can last for your credit score for 10 years, and bankruptcy procedures are quite complicated. There are other ways to get out of debt without the financial consequences of filing for bankruptcy.

  • What you need to know about bankruptcy
  • Debt consolidation made easy
  • Digging out personal debt