Recovering from bankruptcy can seem insurmountable right after you’ve been through the wringer of filing. Whether you’ve had to deal with unexpected medical bills—the leading reason for filing personal bankruptcy—or you’ve been through a rough divorce or a bout of unemployment, or even just a string of bad financial decisions, going bankrupt can make you feel as if you’ve lost control of your finances. In fact, you have lost control. However, not all is lost. It will take a great deal of discipline and work, but you can pull through bankruptcy and restore your finances and credit. You will have to live through some higher interest rates while you rebuild, but you will get back on track. Here are some of things that can help you on the road back to financial health:
1. Create a budget and use cash. One of the positive aspects of bankruptcy is that it forces you to live like your grandparents. Without easy credit, you can’t live beyond your means. Once the cash you’ve budgeted for the week is gone, it’s gone. So figure out exactly what you need for your expenses, and live within that framework.
2. Pay on time. No matter what bills you receive, pay them as soon as they come in the mail. It’s easy to forget that the phone company and the power company are technically creditors, too. Even if you have no credit cards, paying your utility bills late will also set back your attempts at credit repair. So get in the habit of paying your bills when they arrive (or better yet, set up automatic payments so you can’t forget about a payment!)
3. Start with one source of credit. The sad fact is that in order to establish good credit, you have to use credit—which is often the very thing that got people into trouble in the first place. At the beginning, you will probably have to forget about 0% balance transfer credit cards, as getting a credit card with a high rate and a low spending limit is what you will have to expect after having declared bankruptcy, but it’s a place to start. One possibility is to use your card for a single purpose—like filling up your tank, since you can generally estimate how much that will cost each month.
If you can’t get a credit card, it is possible to secure a line of credit through your bank with your savings account as security.
4. Wait on that car loan. While you might be able to find a lender who is willing to give you a loan, it’s really not in your best interests. Your financial past will make the interest rates exorbitant, and cars depreciate so quickly that your money will be much more valuable if you use it for something else.
5. Remember that there are no quick fixes. It can be easy to fall into the trap of wanting to find the easy way out of rebuilding your credit, but there is no such route. Anyone who offers to “fix” your credit is likely scamming you. You simply must put one foot in front of the other and rebuild your finances with each good decision you make. There is no easy way around this work, and there shouldn’t be. You are showing that you are a good bet for the long haul, and that takes time to prove.