Veda Advantage tips on avoiding bankruptcy
Individuals on the road to bankruptcy begin to display warning signs 18 months prior to declaring, a Veda Advantage study based around the credit behaviour of more than 30,000 Australians has revealed.
According to the study those heading for bankruptcy register 48 times more defaults than non bankrupt people in the six months prior to bankruptcy.
Consumers are also five times more likely to apply for a personal loan in the six to twelve month period prior to bankruptcy.
These early signs of financial stress are an important red flag for individuals and businesses who need to seek help. They also provide important indicators for those involved in responsible lending, according to Veda Advantage.
Bankruptcy statistics are on the rise in Australia, with Veda Advantage figures revealing there were over 6,500 new bankruptcies in the first three months this year an increase of almost 9% against the previous corresponding period. Personal insolvency activity rose by 12% to more than 8,000 individuals.
Veda Advantage has formulated a series of tips to help individuals under financial stress avoid bankruptcy.
Bankruptcy is the end of a difficult financial road for most people and declaring bankruptcy is never an easy option. By deciding to act early at the first signs of financial stress, bankruptcy can be avoided in many cases If you are having problems meeting your financial commitments, rather than ignoring the signs or taking decisions which will increase your level of personal risk, it is best to look at ways to structure your finances and alter your lifestyle.
Honest, regular communication with the people you owe money to is also important.
Its study shows that people tend to make a large number of applications for personal loans and credit cards to pay off existing debts in the year before they are declared bankrupt.
The high interest rates on some of these products can often mean that financial stress can escalate. While it is may be hard to admit that you are having financial problems, especially to friends and family, it is important to re-evaluate your spending and structure of your finances before they spiral out of control.
Veda Advantage has formulated the following five tips to help individuals under financial stress avoid bankruptcy:
Ask: Do not be afraid to seek advice. Financial institutions have programs to help you in times of trouble. It is in a bank’s interest to help rescue personal finance or business, and ensure you repay the money owed, before it becomes too late.
Financial or insolvency specialists are also a good option to advise you on minimising both financial and personal loss.
Re-evaluate: Personal debts or running a business at a loss can often just exacerbate the situation. When you first have trouble with repayments, spend time working out a new business plan or a restructuring option.
Taking time to reflect may show you how it is possible to cut costs, reallocate resources and improve efficiency.
Talk: Let people know what is going on. This way mutually acceptable agreements may be made with the people you owe money to. Hiding away and pretending everything is OK will not help the situation.
The support of friends and family is also important to get you through this stressful time.
Budget: Knowing what is going into and out of your bank account is important. Sticking to a budget is often difficult, especially when you are used to a certain standard of living.
However, simple measures such as setting money aside to pay bills and keeping emergency money ready in case you fall on tough times are good ways to prevent bankruptcy.
Consolidate: Debt consolidation involves taking out one loan to pay off other debts. This is useful as you are often able to secure a low interest rate and schedule repayments that are realistic.
It is also useful as it is easy to remember one payment date and amount rather than trying to juggle many different credit cards, loans and other debts.
Bankruptcy in Australia is on the rise and Veda Advantage study illustrates that warning signs can in some cases be detected 18 months before.
All the steps above are important to prevent not only financial problems but also the negative impacts they can have on your relationships and well being.
12-Jul-2007