Clayson, Schneider & Miller


3 ways to protect your financial health

August 3rd, 2017  | Bankruptcy

There are some common pitfalls that can cause financial distress and lead to bankruptcy. Here are some of the easiest ways to avoid bankruptcy:

1. Don’t sign on the line

Co-signing with a friend is a mistake!
As the saying goes with friends and money…

When it comes to giving a friend the help of your signature on a loan, it’s probably best to keep the friendship but skip the co-ownership or co-signing for debt. Even if your friend promises to make good on this loan there are already red flags to consider if you are asked to co-sign for a car loan or other debt. The need of a co-signer suggests your friend might not be a good money manager and may put your credit health at risk if your friend does not pay the monthly installments on time and in full. Even if your friend has a good credit history,  the need for a co-signer is likely a sign that your friend cannot afford the new car loan on his or her own income, even if you friend is good with money, signing up for a loan he or she cannot afford alone may be the first step toward financial distress for the both of you.

2. Credit cards are not your emergency fund

Building a savings account is tough but necessary. It is far more expensive to rely on a credit card to rescue you  than to rely on your savings account. Set up an automatic debit from your checking account that corresponds with payday to pay yourself for your future. Even if it’s just $25.00 a pay period, that is going to add up to $50.00 to $100.00 a month tucked away into savings and that is $300.00 to $600.00 in six months and $600.00 to $1,200.00 in a year.

Putting your money into savings rather than toward a minimum balance:
If you have a $1,200.00 emergency paid from savings, it will cost you nothing and you can keep on saving. If you have a $1,200.00 emergency paid on a credit card and it’s not paid off on the first bill, it will cost you a few hundred dollars in interest and will stretch your budget in a way that could prevent you from putting extra cash into savings for the next emergency.

3. Avoid financing your business on a credit card

In the same way that a credit card is a costly emergency fund, financing a business on credit cards is a costly way to start up a business. According to, the average national interest rate on a credit card is around 15 percent but can range as high as 22 to 28 percent.

The costs of borrowing too soon
Taking a $5,000.00 cash advance that is not paid off in the first billing cycle after the  cash advance is funded is going to cost you at least $1,000.00, taking into consideration additional fees charged for a cash advance, the cost is likely go up to $1500.00 within 60 days. If you pay off the $5,000.00 cash advance over a few years, the cost to you will be at least an additional $2,000.00 or $3,000.00. If you take longer to pay off a cash advance like this, your costs could easily double to $10,000.00 in a short number of years.

Traditional business loans may be difficult to get when you are first in business but in comparison, your business is likely to pay somewhere between 3 and 7 percent interest over a few years, the cost to you will be around $1,000.00 total over a few years’ time rather than just a few short months.

Boot strapping will pay-off
If you are excited to launch your new business, it’s important to take your time, build a business plan, start small and boot strap it for as long as you can. Build your business up and save money from a full or part time job to fund the costs of the business. Once you have established a business in this way, the lower-cost business lending opportunities will open up for you to allow you to grow your business.

DISCLAIMER: The information contained above is general in nature and provided as reference material only. This information is not specific legal advice about the application of the law to a particular fact scenario, nor does it replace (or purport to replace) any requirement to obtain specific legal advice. This information is not intended to and does not create an attorney client relationship. If you require legal advice, that advice should always be obtained from a qualified legal practitioner in your jurisdiction.