For many people, going through bankruptcy seems like a fate worse than death. It feels impossible to get a mortgage, to finance a new car, or to even pay for dinner with a credit card. It’s hard to stay on track after experiencing this disappointment, but it is possible. Here are four ways that you can keep your finances on track after you’ve filed for bankruptcy:
1. Get the Facts
When you are going through bankruptcy, life may seem a bit overwhelming. You may not think to ask about what you can expect after you file for bankruptcy. According to the Law Office of Barbara B. Braziel, for example, many people want to know if they can keep their cars or their homes. They may also want to know what the difference between Chapter 7 and Chapter 13 bankruptcy is. If you do not know the answers to these questions, it may be difficult to plan your finances post-bankruptcy. Be sure to ask your lawyer about what to expect so that you know how to move forward.
2. Sock Away Some Money
Filing bankruptcy can make you feel financially vulnerable. One of the best ways to overcome these feelings is to immediately start saving money after your bankruptcy has gone through. Try working a night job until you have enough money for a short-term emergency fund—you’ll need about a grand—as well as a long-term fund. In the latter case, it would be ideal if you had six months or more in income socked away. This provides you with a buffer in the event of a job loss or illness.
3. Apply for a Secured Credit Card
If you want to start rebuilding your credit, Credit Karma suggests that you apply for a secured credit card. If you’re not familiar with these, it’s a credit card that you fund at first. For example, you save up $500 and “invest” in a secured credit card. You then borrow against the card, with the intention of paying back the amount each month. Over the course of time, your credit will be renewed and eventually, you won’t need your $500 deposit to secure the card.
Of course, you should not do this unless your intentions of paying off the card are sincere. Don’t look at a credit card as getting free money. Instead, see it as borrowing against your future self. To help you more fully understand this concept, it would probably be best for you to start paying off your credit card every time you get a paycheck. If you get paid once a month, do this on the exact day that you get paid. If you get paid bimonthly, then you should still keep this habit so that it’s easier to pay it off little by little rather than waiting for a future date.
Another thing that you should consider is how many credit cards you have. You probably get a ton in the mail, but you ought to be ignoring those. They are like rat traps that are luring but will be harmful in the end. Narrow your credit card system down to only one or two (at most!) cards. This way, they are a lot more manageable. With that idea, don’t get suckered into all those deals that you can get by applying for a credit card to get 10% off your purchases at your favorite store. Yes, that does sound like a good deal and might be worth it right now. In the long-term, however, it’s probably not the best thing that you could do for your credit.
4. Learn to Use Credit Wisely
Credit is an interesting thing. Basically, by having good credit, you’ve told your potential creditors that you’ve had debt and paid it off. You’ve also told them that you want good credit so that you can acquire more debt. That’s really why people worry about their credit scores. They want to borrow more in the future. However, debt can be a vicious cycle. In the end, learning to live without debt can be tricky, but ultimately, doing so will provide you with a measure of freedom that wouldn’t be available to you otherwise.
It’s difficult to live in the U.S. without having some understanding how necessary credit is. Sometimes, this knowledge only becomes crystal clear after you’ve filed for bankruptcy. However, it is possible to come back from bankruptcy if you have the right tools and attitude. Take it as a lesson learned and an opportunity to get your financial life back together.