While I am consistently writing about different issues and scenarios surrounding budgeting and personal financial management – often these are solutions and tips that are to help people, including myself, avoid falling too far into debt. However sometimes extreme debt or financial circumstances do become a reality and as a last resort some times the solution may be to file for bankruptcy. Today I want to talk about some personal finance tips that can help people improve their finances and begin to recover after they have already declared bankruptcy. Since bankruptcy impacts your credit score, you essentially need to rebuild it. These tips are important to getting yourself back on the right track.
If you have gone through this process, it is likely that you will have some difficulties trying to get some additional credit or a new loan and for obvious reasons, this can be extremely frustrating and even deflating. Here are some strategies that you can implement to try and rebuild your credit, so that not only can your finances get back up to a stable level, you can also work towards once again becoming, a good candidate for all future lenders.
1. Cut Back on your Spending
Following bankruptcy it will be very important to try and slim-down your lifestyle so you can dramatically reduce your spending. This will mean that some hardcore budgeting skills will need to be put to use and help you limit your monthly spending as well as try to save some income to put towards an emergency fund. This means only buying necessities, wherever possible, as well as trying to find areas where you can save on purchases such as sales and other shopping deals. Some of these strategies could include buying in bulk or buying no-name brands that are less expensive and can save you quite a lot of money here and there.
As you revise your budget you will want to make sure you are aware of all of your ongoing expenses and credit payments and this can help you to pinpoint areas where you may be able to cut back. Cutting back will also include not charging more money to a credit card, if you can help it – as to ensure you don’t create new and unnecessary debt.
2. Rebuild your Credit
Also following bankruptcy you will want to take the necessary steps to rebuild your credit score. First and foremost, examining your credit report is a good way to find out exactly where you stand and that way you can plan how to improve things. The information on your credit report can detail specific information about how to start rebuilding your credit, as it will paint a picture of where you may have gone wrong. For example, you can start with making sure you pay all of your bills on time. In addition to not missing or being late with any payments, you will want to pay at least the minimum payment – if this is a credit card or loan payment. Since payment history makes up about 35% of your credit score, this is a very important first step to turning things around and re-establishing yourself as credit-worthy.
3. Apply for Secured Credit Card
Once you have spent some time working towards re-establishing your credit and have experienced some success, it can be a good idea to break the ice and apply for some new credit. This credit can come in the form of a secure credit card and this can be a safer method of rebuilding your credit and responsibly managing your finances without falling back into old debt patterns. Secure cards work with lower credit limits, such as $1000 or so and this amount reflects a cash deposit you make towards this loan. This type of credit card shows up as a regular credit card to all credit bureaus and as result can help get you on the right path to credit repair one small step at a time. As long as you can pay the balance in full each much, you will be able to see your credit score bounce back slowly but surely. Typically after a 6 month to 1 year period of consistent payments, you can also look at applying for another unsecured credit card.
Ultimately, it would appear that in order to be successful after bankruptcy it requires these two skills 1) Patience and 2) Consistency. While the above steps can improve your finances and your credit score, it will take time. However, the good new here is that it can be done and you can re-establish your credit as well as begin to live with more financial stability and certainty moving forward.
