For most people facing bankruptcy, building up debt was an incremental process that came about after years of borrowing and spending. Even small, everyday transactions add up over time. And just the interest on these small transactions can come to thousands of dollars per year without you even realizing it. So the first tip for avoiding debt is to keep a handle on small, everyday transactions.
There is a lot to be said for tracking and budgeting your spending — so much in fact that we will address it in a separate entry. But avoiding or reducing these everyday expenses is also important. This does not mean you have to give up all the things you enjoy and relegate yourself to a Spartan existence. But it does mean you should spend smart — keep an eye out for sales on products you want or need; look for specials when you want to eat out; buy nonperishable items in bulk to pay a smaller per unit price, and so forth.
Of course these are just some tips for keeping a handle on debt. In an article published shortly after the amendments to the Bankruptcy Code in 2005, CNN Money also suggested some important steps such as keeping vigilant for scams and keeping a handle on the spending habits of others in your household — especially teenagers and college-age children.
The big transactions also frequently contribute to bankruptcy. Understanding your obligations under a mortgage or other large financing agreement before you sign on the dotted line is crucial. This means understanding how interest and payments are calculated and whether they are fixed or affected by market conditions. Just because a monthly payment looks doable now doesn’t mean it will be the same in a year.