Are These Six Habits Leading You Towards Bankruptcy?

With bankruptcy filings at record highs, it is important to look at some of the habits that lead people into bankruptcy. One of the most obvious financial habits that will cause someone to become bankrupt is spending more than you earn, but the problem is more complicated than that. Here are six habits that could be leading you down the road to bankruptcy if you are not careful.

1.    Getting too many credit cards

Credit cards are the number one reason for consumer debt. As a result, the more credit cards you have, the more likely you are to charge them up and put yourself and your family deep into debt. You do not need a credit card from every department store that you shop at and you do not need to fill out every credit card application that comes to you in the mail. Having too many credit accounts open hurts your credit score and tempts you to use them when you find something you want to buy. Eventually, this will lead to out of control spending and bankruptcy.

2.    Paying your debts with credit

In addition to having too many credit cards, many people who will soon go into bankruptcy use their credit cards to pay off their other debts. Unfortunately, the only thing this does is postpone the inevitable. It may be a smart thing to do once or twice if you have a credit card that charges zero percent interest or some other great offer, but this only puts a Band Aid on the problem rather than correcting your bad habit. It won’t be long before the credit card you paid off is charged back up again and you will be in a worse financial situation than you were before.

3.    Not diversifying your portfolio

If you are an investor, you know the importance of having a diversified portfolio. That means spreading out your investments among various companies, stocks, and other entities, such as gold. But if you have all of your money tied up in one stock or one type of investment, you are a prime candidate for bankruptcy. If that stock or investment plummets, you could lose all that you have invested in a matter of seconds. Reduce the risk of losing all of your money and becoming bankrupt by investing in several companies and stocks instead of relying on just one.

4.    Becoming a victim of identity theft

Every year, there are about 10 million new victims of identity theft. It is one of the fastest growing crimes in the United States. Unfortunately, many people still do not heed the warnings of identity theft and they set themselves up to be sitting ducks for this crime. Thieves can get your information and destroy your credit by opening new accounts and charging them up without you even knowing about it. What is even more unfortunate is that you will be responsible for those charges unless you can prove your identity was stolen, which can take years to do and cost you thousands of dollars in the process. While you can never prevent identity theft completely, you can help prevent it by shredding your documents and being careful when you are online. Otherwise, you could be on the road to bankruptcy without even knowing it.

5.    Ignoring your debts

One of the worst things you can do which can lead to bankruptcy is to try to avoid your debts. You might not want to talk to the debt collectors when they call, but ignoring them will only make the problem worse. Instead, talk to them and try negotiating. Many debt collectors are willing to accept a lower amount than what you owe as long as you are willing to pay something.

6.    Using a debt consolidation company

A debt consolidation company is ideal for some people who realize the financial mistake they have made and want to change. However, for the overwhelming majority of people who have found themselves deep in debt, a debt consolidation company is a minor fix to a major problem. They do not fix the bad spending habits and the consumer often goes back to the same path that led to their falling into debt in the first place. Many times, this happens before they even pay off their consolidation loan. Without a true change, debt consolidation only makes things worse.

Do any of these six habits sound like some of the things you are doing or have done in the past? If so, you could be on the fast road to bankruptcy. Take some time to realistically evaluate your habits and fix the things that need to be fixed to get your finances back in order. Bankruptcy is no joke and it can make things very difficult for you in the future.