As a bankruptcy lawyer, I’ve met with a lot of people who feel like they can no longer control their debt; rather, they feel like their debt controls them. I always try to find the solution that works best for my clients. Often the best solution isn’t bankruptcy, but another form of debt relief. As I tell my clients, one of the simplest ways to start eliminating your debt is by establishing a budget.
For example, I recently had a client (I’ll call him Dave) who came to see me for a consultation on debt relief. After I talked to him a little about his situation, I realized that filing bankruptcy was probably not his best option. He had some pretty big debts, but I knew that with some careful budgeting he would probably be able to dig himself out.
Dave had medical bills and credit card debt. Each month Dave would borrow from one credit card to pay the balance on another. He and his wife also have two children, and they were concerned about their children’s future. His wife isn’t employed, but does receive $900 per month from disability.
I advised Dave that the first step to eliminating his debt was to establish a budget. Like many of the clients I meet, Dave knew that he should have a budget, but nevertheless did not keep one. As a result he had no idea how much he spent every month.
We began by examining Dave’s income. I reviewed Dave’s paychecks and other sources of income, such as his wife’s disability payment. All together his income was around $4500 per month.
Next, I reviewed Dave’s monthly expenses. This was a bit trickier than figuring out his household income because he did not keep track of his expenses. However, Dave and his wife use a debit card to pay many of their household expenses. We were able to visit Dave’s banking website, which provided an itemized list of everything he purchases with his debit card
Finally, Dave and I used this information to figure out how much he was spending each month. It turns out that Dave and his wife were spending a lot more money than was necessary on entertainment and eating out. As a result they only had $550 left over each month to pay off their debts and personal loans.
I helped Dave and his wife create a budget which would increase the amount of money they had left over to pay their debts. Tracking how they spent their money enabled them to change some of their spending habits. Armed with this new budget and a commitment to place limits on their spending, he and his wife were able to avoid bankruptcy and begin to make some headway on their debts.
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