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If you fell into so much debt that your only option was a chapter 7 bankruptcy, we realize your pain. Declaring bankruptcy is just not an easy thing to do. There is a certain amount of shame involved in declaring bankruptcy, plus there is the stain it will leave in your credit file for 10 long years and in your personal file for the rest of your life. So if you were forced into bankruptcy what could you do to get back in the game? Here are 10 tips that should help.
1. Learn to love paying cash. What got you into trouble undoubtedly was the way you used credit cards and personal loans. Since you now won’t be able to get a new credit card for some time, look on this as an opportunity to learn to love paying cash. When you pay cash it totally eliminates the possibility that you will get into any new debt. Plus, you will learn to buy only what you need and should learn to save money.
2. Pay all your bills on time. While you will no longer be burdened by credit card bills, there are other bills such as your rent or mortgage payment, utilities or an auto loan that you will still be required to pay. Make sure you pay them on time including even the small ones. If you are incurring bank fees, have overdrafts or are bouncing checks they will show up on your credit reports and make it even more difficult for you to get new credit. But paying all those bills on time will help you create a new and better credit profile.
3. Create a budget. This may seem a bit harsh but you will need to track your spending for at least three months before you can create a realistic budget that will fit within your income. A realistic budget will help you set boundaries on your spending and that’s the first and best step towards learning to be a smart money manager.
If you would like more information about budgeting here’s a video fron Bank of America that lays out in six simple steps how to go about budgeting and the benefits you would enjoy.
4. Keep an eye on your credit reports. There are several different ways that you can get your credit reports free. There is the website www.annualcreditreport.com and the three credit reporting bureaus – Experian, Equifax and TransUnion, all of which will provide your credit report free once a year. While filing for bankruptcy should mean that you now have a clean slate credit wise you want to make sure that this is reflected accurately in your credit reports. You will also want to monitor your credit reports regularly to make sure that they don’t contain any errors. This is an important step in taking control of your finances and being a better money manager. It also allows you to see how prospective lenders will view you.
5. Get a secured credit card. If you’re not familiar with this type of credit card it’s where you deposit a certain amount of money with a financial institution and then charge on it until your balance reaches zero. You should then deposit more money and continue using the card. It’s important that you make sure that how you’re using the card will be reported to the three credit bureaus so your credit reports will reflect the fact that you’re using it sensibly. In many cases after you’ve used the card for a year – again assuming that you’ve used it wisely – you may be offered a normal-type credit card. There is a certain amount of irony at work here. And that’s the fact that a credit card, which can do you the most damage, can also be of the most help.
6. Reestablish your credit with a line of credit . You may be able to get what’s called a second loan or line of credit through your bank that’s secured by a savings account. This would help you reestablish credit although the interest that you earn on the savings account will be more than trumped by the interest you will be required to pay on the line of credit.
7. Nurture long-term relationships. Time does heal all wounds including a bankruptcy. Since 15% of your credit score is based on your credt history it’s best to stay with the same bank or credit card as long as possible. You might even eventually be able to get a credit card from the same issuer you had before your bankruptcy. Of course, you will need to prove that you now know how to use it wisely.
8. Don’t buy a car unless it’s absolutely necessary. You should resist the impulse to buy a car for two years unless you really absolutely need to get one. You may find some used car dealers that will be able to arrange an auto loan before two years but if so it will have very harsh terms. You need to spend two years rebuilding your credit before applying for an auto loan to get favorable terms. And you just can’t wait two years while doing nothing. Just waiting two years will not improve your credit score. You need to use that time to reestablish a decent credit history. If you wait two years you could even apply for a new mortgage if you can show that you’ve rebuilt a good credit history during that time.
9. Steer clear of scams. Don’t fall for any company that promises it can quickly fix your credit after bankruptcy. It’s hard work to reestablish your credit. There are no shortcuts. The good news is that you can do it yourself and for free. Credit just can’t be repaired overnight though there are a lot of scamsters that will promise to do it for you – for a large fee. If the company requests a fee upfront you can just about bet it’s a scamster. Even if the company seems legitimate and doesn’t seem too good to be true don’t do anything until you’ve checked it through your local Better Business Bureau or your state’s regulatory agency.
10. Remember the human touch. If you find you just can’t get a lender willing to take a chance on you after your bankruptcy, try writing a letter explaining the circumstances of your situation. There are times when the lending business can be a very human one. If you can responsibly and maturely explain why this was a one time thing and that you have learned a lesson and have moved on this could help the lender decide in your favor as most loan officers understand that bad things can happen to even good people.
In summary
Don’t despair because you were forced to file for bankruptcy. It’s possible to get back in the game in just two years by following the tips you read in this article. It will take some work on your part but it’s more than possible that after just two years you will be able to get new credit at reasonable interest rates, including even a mortgage or auto loan. Just make sure you treat that new credit sensibly so that you don’t end up in the same black hole that forced you to declare bankruptcy.
