When you are buried under a huge pile of debt and creditors are harassing you about late payments, you may enjoy the feeling of relief that comes when you file for bankruptcy.
By taking this step, the creditors’ phone calls and letters may cease, and you may be able to move past the debt situation that has been stressing you out for years. However, filing for bankruptcy is not entirely rosy. It can wreak havoc on your credit rating and financing, and it can also set your emotions in a tailspin. Navigating through this process is easier to do when you have a good strategy in mind, and you may find these tips helpful to get you back on a stable path in life.
Create a New Budget
One of the first steps you should take after your bankruptcy is to create a new budget. Many aspects of your budget will change after a bankruptcy, and a budget can be used to help you make financial decisions about money management on a daily basis. Now is a time to start fresh with your finances, so you need to educate yourself about the best ways to use a budget. The Internet is a great financial resource that you can use, and there are a seemingly endless number of financial articles related to this topic that each provide a unique take on budgeting. By learning how to create a budget and by educating yourself about how to properly use your budget in the months and years to come, you can better manage your finances and avoid falling into debt again.
Allocate Ample Funds to Savings
Saving money regularly is one of the best steps you can take to avoid taking on excessive amounts of debt. Savings balances are often indirectly proportional to credit card balances. This is because as your savings balance increases, you are less likely to turn to debt to make large purchases or to pay for unexpected expenses. Set up automated transfers from your checking account to your savings account that are scheduled on your paydays. This will ensure that your savings account balance grows slowly over time. Once you have a sufficient amount of money saved in a rainy day account, continue allocating funds into an investment or retirement account to further boost your financial security.
Take on New Debt Strategically
In the months following your bankruptcy, you will need to think about ways to rebuild your credit rating. Your bankruptcy may remain listed on your credit report for seven years or longer in some cases, but some individuals have been able to improve their credit rating up to a score of 700 or more before their bankruptcy is removed from their report. Consider applying for a single secured credit card with a low limit. A secured credit card requires you to pay a cash deposit when opening the account, and this deposit will be used to establish your credit limit.
Use this credit card to make only a few small charges from time to time, and pay it off in full each month. When you follow this strategy, you can rebuild your credit rating and may qualify for better rates on future loans. Avoid applying for a car loan or other loans during this period of time. It is best to simply hunker down financially and use your secured credit card to rebuild your credit rating.
Avoid Making Major Life Decisions
Many people replace their cars every few years, and it is also common for individuals and families to move rather frequently these days. However, your ability to qualify for a car loan or home loan may be impaired during this period of time. Even if you can qualify for a loan within a couple of years, your rate may be much higher because the bankruptcy is still showing on your credit report. This means that you will be wasting money on interest charges over time. If you absolutely must make a major life decision that affects your finances, carefully analyze the pros and cons. Always make informed, rational decisions rather than emotionally impulsive decisions that could ultimately harm your financial status.
While filing for bankruptcy can be beneficial in many ways if you are struggling with your finances, it also can be devastating. This process can negatively affect your finances, your credit rating and your emotional state. It can take months or even years to fully recover from this process, and you should be prepared to walk through this period of your life with care. Follow these helpful tips to get your life back on track, and always research your options thoroughly before you make a decision that will affect your finances or credit rating. By taking these steps, you can more successfully improve your life after filing for bankruptcy.