Bankruptcy is like an angry neighbour. One minute you’re under his tree, in the middle of the night, chucking his mangoes in a plastic bag. Then suddenly there’s a clothes pole broken off in your butt, and you’re limping to intensive care. That’s something every Singaporean can empathize with (It is if I say it is, damn it) Anyway, bankruptcy is the same. It blinds you with a haze of greed; you’re having such a good time acquiring stuff, you don’t see it coming. In this article, I explore the common signs:
Not pictured: The gun and ski mask in the other pocket
1. Living From One Pay Check to Another
You know who I’m talking about. The people who fluctuate from rich to broke so consistently, their wives can time their periods according to when the household cash flow.
All of us do it to some extent, but these people take it to extremes: They constantly have $0 in their bank account the day before pay day. In event of emergency, their backup plan is either credit cards, or whatever change mum left on the table when she wasn’t looking.
"Can I postpone that new kidney till next month? I'm a bit tight right now."
Having no savings means resorting to credit for emergencies. Credit leads to debt, and eventually, out-of-control interest. The danger is, the threat doesn’t appear on paper. By simple accounts, these people are not in financial trouble; but only in the way a fat man is “safe” because he’s not having a heart attack just now.
If you’re in this situation, treat it as an early warning. Redirect investments to savings, if you have any. Otherwise, start looking for side income that goes into a savings account.
2. Education Loan Repayment Exceeds 40% of Income
"After getting your degree, please get the unemployment assistance forms next door."
Education is an intangible asset. If you’re broke, you can’t exactly put up your degree in a yard sale (Or actually, you could and I’d buy it, along with some white-out and marker pens. But you wouldn’t make more than $12.90, tops).
Education loans are fast become an (indirect) source of bankruptcy. A degree doesn’t always guarantee a job, students aren’t guaranteed to pass first time around, and that piece of paper cost a lot of money. That doesn’t mean we should give up on higher education; it just means we need careful timing.
If you’re paying your way through school, don’t rush into a degree. Take your time building up your savings. When you have a good emergency fund (about six months income), then take out the loan. You may lose out on a few years, but it’s better than going bankrupt.
3. Repossession of Any Sort
"We're almost done. Now get your son in that van."
Having anything repossessed, even if it’s just a TV set, is cause to freak out. It’s like waking up in the morning and vomiting a chunk of your liver; you don’t ignore it and assume you’ll be fine by Friday.
Repossession means your finances are out of control. Your expenses are already exceeding your income, and you’ve taken the first step on the road to “I’ll jump, I swear it”. For your sake, take immediate action when repossession occurs. After crying like a baby, break open the accounts book and see what you can cut. Close that gym membership, auction off your stuff, and start living on $4.50 value meals.
Above all, talk to credit counselling. You need it worse than Megan Fox needs perspective.
4. Nothing is Insured
"Well I did make a bet I'd crash it before March. That's almost as good as insurance."
Having no insurance is like telling Mike Tyson to “come get some” after your second Tai-Chi lesson. It’s a guarantee that, at some point, you’re going to get knocked on your ass and stay there.
Pay especial attention to mortgage insurance. Should you lose your income, your mortgage insurance will pay off the remainder of your house. And being able to sell your house, as opposed to having it repossessed, will save you from a declaration of bankruptcy.
Likewise, a number of bankruptcy cases result from medical costs. In the event of emergency, paying with credit cards will build up debt so fast, you’ll wish you were dead. When it comes to health insurance, better to have it and not need it.
5. You Can’t Pay Your Credit Cards in Full
"This credit card is for emergencies. Like a coffee emergency."
If you can’t pay your credit cards in full, even if you want to, you’re sunk. You’ve accumulated revolving debt, and gone way past the the tipping point.
At this stage, all you can do is cope with the interest. It’s going to be like bailing water from a sinking battleship…with a 7-Up bottle. But paying back the interest will stop the debt from getting worst, until you can find a bigger income source. This situation is common with people who only pay the minimum sum.
Are you suffering from any of the symptoms here? Comment and let us know, and we’ll figure out what you can do about it.
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