Insolvency is a term that originated in the 16th century defining a financial state where an individual or organization is underwater financially. They are considered legally insolvent when it is determined that there is no way for the individual or company to recover from their dire financial straits. There two different types of insolvency to look at. There’s cash flow insolvency and balance sheet insolvency.

Cash Flow Insolvency

Cash flow insolvency occurs when the individual or company no longer has the cash coming in to meet their financial obligations as they fall due. This can happen to an individual when someone in the household loses a regular source of income. Examples of such are being laid off from a job, reduction or loss of alimony/child support, or reduction/elimination of a government benefit like social security or unemployment compensation. The loss of this regular income can create a situation where there is no longer enough incoming cash flow to pay the monthly household expenses.

In a business, cash flow insolvency can occur when the net income of the company is reduced by factors such as lower sales than previous months, loss of regular clients that accounted for part of their income, or reduction/elimination of contracts for goods/services the company once provided. In a non-profit organization, cash flow insolvency can also occur when regular donations start to drop due to either more difficult economic circumstances or some other factor.

Though the circumstances may vary between individual households, businesses or non-profit organizations, cash flow insolvency is essentially the same thing in all 3 instances. It’s the inability to meet monthly debt obligations with monthly cash flow. If this situation is not reversed, it will eventually lead to balance sheet insolvency and eventually the situation will no longer be reversible without some form of bankruptcy or re-organization.

Balance Sheet Insolvency

Balance sheet insolvency is a situation where the current assets of an individual or organization are outweighed by their liabilities. In most cases, this circumstance occurs as a result of cash flow insolvency over an extended period of time. In the case of an individual household, if there is not enough monthly income to pay monthly debt obligations, they may be forced to borrow money to pay monthly expenses. Some may borrow against assets like their home or car, others may use unsecured debt like credit cards to pay their monthly bills. If this continues month after month for a long enough period, balance sheet insolvency will be the result.

In a business or non-profit, balance sheet insolvency happens in a similar way. When the monthly cash flow is not enough to meet monthly expenses, the organization will be forced to use other sources like working capital, bank lines of credit, business credit cards, and eventually liquidation of current assets like bank accounts to pay the monthly bills. In a business or non-profit, there are other assets known as fixed assets that are not easy to liquidate and in many cases are needed for the organization to continue operations.

Examples of fixed assets include plant & equipment, corporate offices, vehicles, furniture, computers, etc. If the organization is experiencing balance sheet insolvency and is unable to at least start breaking even or ideally produce monthly positive cash flow quickly, they will eventually reach the point of having to consider liquidation of their fixed assets. In many cases, however, the company may choose to opt for some form of bankruptcy, which can protect them from paying their creditors while they attempt to get their finances turned around.

Solutions to Insolvency

The solution for both individuals and organizations to become solvent again is the same-they must begin to produce positive monthly cash flow as quickly as possible! How this will be achieved will vary with every different circumstance. Whatever the situation, however, there are basically two ways to reach this goal:

1. Reduce monthly expenses.
2. Increase monthly income.

For an individual household, the first thing that needs to be done is cut out unnecessary expenses. Look over all fixed monthly expenses and determine which ones are truly necessary and which they can live without. It may be that some tough choices need to be made. They may need to cut out cable tv, reduce/eliminate their cell phone or internet service plan, or stop going out to eat. After cutting everything possible from the household budget, it’s time to look at ways to increase their monthly income.

Perhaps someone in the household can take on a part time job, or start some kind of home business. Or it may be time to look into getting educated in a new skill that can earn a higher income. All options need to be looked to determine how they will be able to increase their income. If all else fails, they may need to consider more radical changes like downsizing to a less expensive home or getting rid of the car and beginning to use public transportation. If even these changes don’t turn the situation around, personal bankruptcy may be the only option.

For a business or non-profit, the same principles apply. First, cut everything that is not essential to the survival of the organization. This will usually mean elimination of some jobs or asking the employees to accept wage freezes or cuts while the company attempts to turn around. After the cuts are made, it’s time to look at possible new revenue sources. Some of these may take a while to come to fruition, so it’s important to determine if the company would have the working capital to survive while in the process of expanding into new revenue streams.

When all else fails for the organization, it may be time for them to consult an insolvency practitioner or bankruptcy attorney and review their options. If they are advised that they are legally insolvent and there is no hope of climbing out of their financial mess, then bankruptcy may be the only way to reorganize and recover.

The the debt snow ball process is easy, However, you must put together a plan on how to find extra money to put toward your bills. You could work a second job, sell items on EBay, sell old books on Amazon, reduce your entertainment budget or use a hobby to make money. Once you start earning extra money, apply it to the smallest account first while still making monthly payments on the other bills. This tactic could be time – consuming, but with time you will see your bills reducing.

Now that the first bill is eliminated, take the money that you were paying to get rid of the first debt and apply it to the second bill. Now repeat this process for each account starting from the smallest to the largest. By the time you reach the largest bill, you will have enough money to eliminate it.

This debt snow ball method appears to be fairly easy when reading this article, but in order for it to be effective, you must have a good plan to carry it out. For starters, you must really understand where you stand with your finances. After you review your situation, write down every bill you have attached to your name. At present, just include credit cards and small loans. You should deal with the bigger accounts like the car loan and the mortgage once the smaller ones are gone. Once you put together your list, write down all your monthly expenses.

Make sure you have included all expense in this list. To help you out, look back at your bank statement and your check book register to help you remember. If you want the debt snowball to work, you must be accurate and complete when it comes to your bills.

Once you are finished with your expenses, list your combined income for each month. Then subtract your expenses from your income to see where you stand. If you have money left over, that means you spend less than what your make. Now take the extra money that is left over and apply it to your debt snow ball.

However, if after subtracting your expenses from your income, and you do not have money left over, you have to find away to bring in more cash to help with the debt snow ball. The debt snow ball method will help you get out of debt but it takes time. I think that this is the best way to eliminate bills because it’s free and simple.

Mark Clayborne is a Certified Credit Consultant with ten years of experience assisting consumers with credit issues. For more powerful secrets on credit repair, debt settlement, stopping collectors, rebuilding your credit, and raising your score, please read the first chapter of The Credit Repair Book for Free and get a Free Restore your Credit E-class at http://www.hiddencreditrepairsecrets.com

Debt consolidation is a process whereby all your debts are consolidated in a single loan allowing you to benefit from a reduced interest rate and a longer repayment term. As a result you should expect to get a lower monthly repayment fee thus allowing you to free some additional cash.

This type of loans is perfect for people that find themselves struggling month after month with their loans repayments. There are other people that only manage to pay the minimum repayment fee, i.e. only the interest. As a result the loan stays at the same amount and they find themselves falling back on the payment and getting deeper into debts.

Debt consolidation can also be advantageous for people that want to make some savings. For instance some debt consolidation loans can be more economical than your current loan and it could be a wise decision that you make the switch. This will allow you to make some savings on your monthly budget. Alternatively you can use the free cash to invest in some other schemes that will be more profitable financially.

Before you choose your consolidation provider it might be important that you make some research on the different companies. Not all of them are equal and some can be more interesting than others. You can have a look at their website to find out more information on their services, paying special attention to the fine print. It is important that you consider all the different fees that you will need to pay and not only the interest rate.

Most of the big companies will offer a loan calculator on their site allowing you to find out how much you will have to pay each month. This can give you an idea of the amount of savings that you could make by making use of their service. You should try to do this for at least three companies in order to get a better idea of these services. Only then you should take a decision whether you should really take advantage of a debt consolidation loan.

Debt consolidation loan can be really instrumental in order to allow you to free some cash. This can be really useful whether you are in some difficult financial situation or because you need some additional fund in order to invest. However make sure that you do some research before choosing your debt consolidation loan.

2. Another type of debt relief program is debt settlement, which is good if you have many credit cards. With debt settlement, you will have only one monthly payment, a smaller outstanding balance, and reduced or waived late fees.

3. As a last resort, you can file bankruptcy, but this has negative consequences. After filing bankruptcy, you will probably never be able to take out a loan again, and you will always be considered to have bad credit.

4.There is also the “ostrich method.” This is not recommended and usually doesn’t work. It means to ignore your debt and hope that it just disappears on its own. If you do this, you will probably end up being even more in debt.

5. It is not necessary to look for help to get out of debt. You can also do it on your own by learning to manage your finances. This is called self-repayment. This way you don’t have to pay any financial company to help you.

Things you can do on your own to get out of debt include saving money when you can. Don’t spend everything you make. You can lower your spending by buying only what you need. Cut back on entertainment. At the grocery store, buy generic when possible or use coupons. When going short distances, walk instead of driving to save gas. Turn off the lights and electronic devices when not using them to save on utilities. If you make small changes like this, you will have more money to spend on bills.

Also, don’t use credit cards with high interest. If possible, completely stop using credit and only spend money that you have. Be sure to pay at least the minimum payment on all your bills. Never be late on payments or else you will be charged a late fee. Commit to paying a specific amount every month on some of your bills in addition to the minimum payment, starting with the bills with the highest interest.
To make more money for paying bills, you might want to consider selling some of your stuff that you no longer want or need. You can have a garage/yard sell or sell some things online. Another way to make more money is to get an extra job. You can get a part time job in the evenings, early mornings, or weekends to supplement your income. For a more flexible schedule, you could get a job that you could do at home on your own time.
Whatever strategy you choose, you should start immediately. Don’t make excuses for not being able to pay your bills. Write down your financial situation on paper, including how much you make each month, your minimum payments that you must pay, additional amounts that you want to commit to paying, and how much you need for other expenses, and what is left after all necessities are paid.

Mark Clayborne is a Certified Credit Consultant with ten years of experience assisting consumers with credit issues. If you liked this article, then please sign up to read the first chapter of Hidden Credit Repair Secrets and get a Free Restore your Credit E-class at http://www.hiddencreditrepairsecrets.com This article may be freely reprinted or distributed in its entirety in any Ezine, newsletter, blog, or website. The author’s name, bio and website links must remain intact and be included with every reproduction.

Article Marketing Robot Rules!

Unfortunately, if you’ve gone overboard in your spending and have built up too much credit card debt, you can’t just grab a few pills to fix the problem. There are no “quick fixes”. And no “secrets”.

But there is a process you can follow to become debt free. It requires a plan. And a commitment. And time. But it can be done. Are you ready? Here it is, how to spell “debt relief”:

R-Realize that debt is a habit, and can be changed.

Just like fixing any problem, the first step is to own up to it. The cause of getting into debt is simple – you are spending more than you make. And if you stay in debt, or worse, your bills keep getting bigger and bigger, than you need to take action immediately. So stop spending. Put away your credit cards. And stop the problem from getting even worse!

E-Educate yourself about the different options and identify the right one for you.

The worst thing you can do to fix the problem is to respond to the first ad you see or hear, and think you’re done. Wrong! There are many ways to get yourself out of debt. One part of the solution can (possibly) be to call a debt relief company. But first, you need to realize that there are several different types of programs – debt consolidation, credit counseling, debt settlement, home equity loans, even bankruptcy. All have their place, and all are slightly different. So before you pick up the phone and call, do a little research. And figure out which plan sounds best for you. Then shop around and compare 2-3 different companies so you make sure to find the right one for you!

L-Lay out a plan that works for you.

Once you’ve started thinking of ways to get out of debt, write it all down. Come up with a plan. One that lists everything you’ll do to help yourself pay off your bills, everything you’ll do to save money & make a little extra, and everything you’ll do to prevent this from happening again. Put down your goal AND a deadline for achieving it. Then don’t let anything get in your way. If things change, that’s ok, just update your plan. But keep a copy of your plan somewhere that you can see it easily. So you look at it often and keep yourself motivated and moving in the right direction!

I-Identify ways to cut your spending and save money.

This is often the hardest part for most people. Why? Because nobody wants to give up luxuries they are used to. Like cell phones. Cable TV. Or fast food. But getting rid of some of these – or at least getting a cheaper service plan – is an easy way to save. Other ways are to shop around before you buy, to look for the best deal. And only buy what you can afford to buy with cash – no more credit cards!

E-Extra income helps a lot, PT job, start a business, sell stuff you don’t use.

Sure, you’re already tired from a long day at work. How can you even think about finding the time or energy to do more? Well, if you want to get out of debt, you may need to “just do it”. How about a weekend tag sale? Or selling your stuff online? Or bringing some of it to a consignment shop? No, none of these ideas will make you rich. But a few extra bucks here and there can help a lot. So can getting a part-time job. Or even starting a part-time business. Be creative. I’m sure you can come up with at least a few ways to bring home a little extra money!

F-Fight through the tough times and don’t quit your plan!

After you first decide to get out of debt life will be easy. You’ll be so excited that motivation is easy to find. But after a while, you’ll start to feel the stress of cutting back. You won’t be able to go out on a shopping spree. Finding money to pay bills will get harder and harder. But DON’T let yourself down easy. Work hard. Stick with it. Even when times get tough. Sure, it is OK to give yourself a reward every once in a while. Just don’t go crazy. Or you’ll ruin all the work you’ve done. Don’t let it happen to you. Be one of the “get out of debt” success stories!

To be completely honest, getting OUT of debt is a lot harder than getting INTO debt. As I said earlier, there are no pills or quick fixes. But it can be done, if you work at it. As Nike said in one of their ads a few years ago, “Just do it!”

It’s normal for parents to worry about how their children will fare in later life, but today’s parents have good reason to be particularly worried about the debt problems that they’re facing – and that their children might also face when they grow up and leave home.

It’s not just that we’re dealing with record levels of personal debt and insolvencies. It’s also that personal finances are widely perceived to be getting more complicated and harder to understand.

A recent survey for M&S Money has indicated that around 20% of parents believe their children won’t be well equipped to deal with their finances when they grow up, as there’s too much jargon involved, and not enough practical advice at school.

And around 25% of respondents believe it’ll be easier for their kids to get into debt, even though the recent economic problems mean the country as a whole is more cautious about finance at the moment.

Nonetheless, almost a third of them feel that the next generation can learn from the past – that ‘imparting their own experiences can help their children learn and improve their chances’, as the press release puts it. By being more up-front about personal finances with their children (than their own parents were with them) and by ensuring there’s enough coverage of finance in the school curriculum, they’re confident that their children can be better prepared to deal with the challenges of managing their finances later on.

“In itself, worrying about how your children will cope with adulthood is nothing new,” said a spokesperson for financial solutions company Think Money, “but subjects like this are particularly high on many people’s priorities lists right now because of the economic turmoil we’ve seen over the last few years – and because of the huge numbers of people who’ve ended up struggling with debt problems of their own.

“No-one who’s had to deal with unmanageable debts would want their children to go through the same levels of stress that they’ve encountered, so it’s only natural to worry about whether they’ll learn from their parents’ experiences – or whether they’ll find themselves in a similar situation a few years from now.”

A greater focus on financial education, of course, could seriously reduce the risk of running into debt problems, which is why so many people are calling for schools everywhere to provide more practical education in this field, teaching children to manage their money and their debts.

But school isn’t the only place where people can learn. People who left school years ago can still talk to financial specialists and find out how to deal with debt problems or – preferably – avoid them altogether.

“The right debt advice can make a huge difference to the way someone handles their financial affairs,” the Think Money spokesperson continued. “Whether it’s tips on budgeting, advice on debt management or help understanding the jargon that so often comes with personal finances, it can help borrowers address the problems they’re dealing with today, and avoid running into similar problems in the future. And of course, people who have learned how to manage their finances effectively will have a lot of useful knowledge to pass on to their children.”

Since nobody knows how things will turn out in the future, paying your debts off early can be very reassuring. However, overpaying on your debts will compromise what else you can do with your money – so it’s up to you to decide whether it’s worthwhile.

How to overpay debt
Most (but not all) lenders will allow you to make overpayments on your debts. Some may charge a fee (often known as an ‘early repayment charge’). Some lenders who do accept overpayments will limit the amount you can repay in one go.

Alternatively, some debts can be repaid without any charges. For example, overdrafts can be repaid as and when you are able to do so, as can credit cards, which only require a small minimum repayment each month.

Should I bother with overpayments?
As we mentioned previously, overpayments are a good idea in general, but it will obviously mean you are left with less money at the time.

This isn’t really an issue if you’d otherwise be spending that money on non-essentials, but if you are overpaying by so much that you can’t afford to save any money, you might be better off saving a bit instead – or as well.

Although overpayments might improve your financial security in the future (because you’ll be free of debt sooner), savings are important as a ‘safety net’ against anything unexpected that might come up now.

Like anything, the key is moderation: by all means, overpay on your debts if you can afford to, but savings should be a priority unless you’re really struggling with debt and need to use your savings to get out of trouble.

For more information on managing debt, visit this site.

There are various techniques to handle debts and financial problems. Some consumers might wish to go for debt reduction. It is the most recent trend in financial management and there are many types of debt reduction softwares to help the consumers. Debt reduction software is also known as debt reduction planner.

Debt reduction softwares are available from various websites. Consumers can buy them online or from a computer software shop. This software normally is accompanied by a debt reduction calculator.

Debt reduction software helps you determine you how fast your debts can be paid off and how summing up some extra every month affects your principal balance. This software would train you about the actual cost of your debt and how important it is for you to pay off your credit card debts soon. It also helps you formulate a budget just to make sure you plan your expenditures well. You can also monitor how your debts are being paid off.

Debt reduction software can work as a useful tool that can help you lower your debt by suggesting different measures. However, it cannot make you debt free. You still have the responsibility of paying your debts. Debt reduction software would just educate you on effective money management skills.