If you are considering bankruptcy but are worried it may be hard to regain your financial footing, relax. For many people bankruptcy is the only way to free themselves from debt and move on to a less stressful financial future.
Five ways to get back on your feet after bankruptcy
- Make a budget
- Learn to love cash
- Pay your bills on time
- Watch your credit report
- Get a credit card and/or re-establish credit through a line of credit
Even obtaining credit after a bankruptcy is not as difficult as you may expect. While you may initially be asked to pay a higher interest rate, these days, many respected lenders will extend credit to those who have had past financial difficulty. Regardless of your situation, your goal after filing bankruptcy should be to straighten things out and establishing good credit.
Here are five steps to getting back on financial track:
1. Make a budget. Track your expenses for three months to get an idea of how much you’re spending and where that money is going. Then create a realistic budget that fits within your monthly income. The first step to saving is to set boundaries on your spending.
2. Learn to love cash. One of the benefits of bankruptcy: Many people who’ve been through it develop a “depression-era mindset”, the result: You pay with cash, buy only what you need and save more. But don’t fear credit. You must re-establish credit after bankruptcy unless you plan to buy everything in cash — including a house or cars. Even future landlords or employers will want to see that you have rebuild credit after bankruptcy. Love cash, but learn to manage and respect credit.
3. Pay all your bills on time….even the small ones. Also important: your bank. If you are bouncing checks, have overdrafts or are incurring bank fees that will show on your credit report as well.
4. Watch your credit report. You’ve been through a bankruptcy to get a clean slate, and you need to make sure this is accurately reflected in your credit reports. You also want to take control of your finances and start making some smart moves, which means monitoring your report regularly for errors.
5. Get to work building a new credit history. You’ve been through the bankruptcy and developed a financial plan for moving forward. While sticking to your approved budget and plans, obtaining a credit card or line of credit, and making regular payments, further demonstrates to lenders that you are “financially fit”. A continued history of prompt and complete payments to credit bills will help improve your credit score and may also bring down the interest rate that you are charged from creditors. If you prove to your creditors that you are paying your bills on time every month you will be amazed how your credit line will increase or having the ability to refinance a car loan at a lesser rate.
As with many things, when you get the facts, you’ll find that the “fear” surrounding bankruptcy is unfounded. For many people and for a variety of reasons, bankruptcy can be the key to establishing a sound financial plan and future.
