If you've racked up a pile of debt by spending more than you make, you may find yourself looking for a fresh start with your finances. Maybe you're in hock with the IRS. Maybe you've maxed out credit cards. Whatever the situation that has brought you to this point, you do have options.
Learning how to manage your finances is a skill that requires practice. However, far too many people don’t get a chance to cultivate these skills before running into financial trouble. This can result in years of crippling debt and the inability to spend money on vacations, new vehicles, and enriching experiences.
If you’ve found yourself in this situation, you’re probably desperate for a fresh start. Thankfully, there are several different ways to rebound and reach a point of financial security. One of the first places to start is with your taxes.
Manage Your IRS Debt
While the IRS generally gets a bad rap for being sticklers, they still offer plenty of opportunities to write off business expenditures and save money during tax season. However, if you don’t pay your taxes, they will come down on you like a hammer. Not only will an audit affect your credit, but it also throws a wrench into your entire financial profile.
Many people who have landed in financial trouble have arrived at that point by failing to pay their taxes and incurring a failure-to-file penalty. It works like this: for every month that an individual has failed to pay their taxes, they are charged 0.5 percent of their unpaid taxes monthly. Additionally, more fees will accrue the longer you fail to pay, which can result in a lien on your property, assets, and even your wages.
If you’ve found yourself in this situation, you have several options. One of the most effective is called the fresh start initiative program, which can help dismantle existing tax liens and make it easier to settle debts with the government.
Manage Your Lifestyle
One of the most common ways people end up in financial trouble is by overspending. They figure they can spend a much larger portion of their income than is realistic, and when they are hit with an item of large expenditure, like a medical bill, they spiral into debt.
Learning lifestyle management is one of the key ways that you can get your finances under control. Consider the following areas:
- Transportation: Could you complete your commute by using a bicycle? Gasoline charges, not to mention auxiliary costs that are related to car ownership, are incredibly costly and can often be mitigated if the circumstance works.
- Dining: How many times a week do you go out to eat? While dining out with friends or a partner is often a gratifying experience, it is unquestionably costly and often unnecessary.
- Entertainment: Are you subscribed to services that you don’t frequently use? Focus on the few that matter, that add value to your life, and cut out the rest.
File for Bankruptcy
Sometimes an individual’s debt can be overwhelming. It can prevent them from leading even a modestly comfortable life and can be the source of endless stress and worry. In these cases, it’s often worth it to file for bankruptcy.
Bankruptcy is not a small matter. While it may handle the problem of your debt, those who file for bankruptcy will have the filing on their credit report for up to 10 years. This can make it all but impossible to conduct any credit-related dealings.
On the bright side, with your debt eliminated, you have a chance to start saving again, planning for retirement, and organizing your financial life in a sustainable way. Just remember that, if you do take this route, a second bankruptcy would be doubly devastating to your credit. Make the adjustments necessary, so it doesn’t happen again.
Develop and Stick with a Budget
Many people start to develop a budget but never end up following through with it. There are countless applications and other services that can scan your financial profile and set one up for you, but if you don’t take the initiative to hold yourself accountable, you will have a hard time achieving financial stability.
Restart Your Finances!
There is nothing shameful about needing a fresh financial start, although many people feel this way. The best thing to do is think of it as a clean slate. Don’t dwell on the past; don’t make any new large purchases, and think about how you can take advantage of this opportunity to establish new financial habits. A happier and financially secure future is right around the corner. You just need to make the right turns to arrive there!
Of course, it's best not to get into debt with the IRS at all. Be sure you're withholding the right amount out of your paychecks.
Credit card debt is among the most expensive of all types of debts. They are very hard to pay off when you have large balances. They are an indication of living beyond your means. That's what gets you into trouble in the first place.
I think it's safe to say that filing for bankruptcy should be a very last resort. As we mentioned, it stays on your record for a very long time. It makes it much harder to reestablish your credit and standing.
The two keys to staying out of financial trouble are managing your lifestyle and working from a budget. However, if you find yourself in trouble, I hope you find these options helpful.Follow us
Fred is the Founder and President of Leamnson Capital. He helps people preparing for and in retirement with financial, retirement, Social Security, and estate planning.
At Money with a Purpose, he focuses on three primary areas: Personal Finance, Overcoming Adversity, and Lifestyle. He has been quoted in Forbes, USA Today and appeared in Money Magazine, MarketWatch, The Good Men Project, Thrive Global and many other publications.