Many people worry about what filing for bankruptcy does to your credit score — but, filing can save you from the significant credit hits and financial ruin that come with foreclosure, lawsuits, repossession and wage garnishment.
If you are worried about rebuilding credit after filing for bankruptcy, here are a few tips that can help you get back on track once you’re out on the other side.
Accept the timeline
Be wary of any advice to fix your credit score fast. Time is actually a factor in your credit score. If you’ve been managing your money well over a long period of time, you’ll be rewarded. There are plenty of ways to establish good budgeting habits. First, accept that rebuilding your credit score will take a few years — but, also remember that it is possible!
Get budgeting help
Budgeting is probably the single most important exercise you’ll need to practice to get your credit score where it needs to be and escape this financial nightmare for good. Smartphone applications like Mint, You Need a Budget, Wally and Coinbase all offer users a way to keep bank accounts, bills and payments in one place, while receiving daily spending limits and tracking progress toward financial goals.
Early bird gets the worm
Don’t be punctual, be early. Though you may have a minimum on your credit card and it may not be due for a few weeks, the sooner you pay what you can, the better your credit score will be. As you begin, try to only buy things you have the money for. Then, if you’re using credit, pay them off right away.
Be strict with yourself
Being strict with yourself involves setting reasonable goals. If you’re having trouble with this, map out your income and necessary expenses to determine the amount of money you have left over for leisure.
Keep in mind that expenses you previously viewed as “necessary” may need to be cut. For example, a Netflix subscription is not necessary, whereas your groceries are. Going out to dinner each week isn’t necessary, but your electricity bill is.
Once you know how much you have outside of your necessary expenses, you should also designate ten percent of your check toward savings. From there, be strict with your timeline for spending leisure money and don’t allow yourself to overspend or dip into other funds.
Talk to a lawyer
If you’re still not sure you’ll be able to get your credit score back on track, talk to a bankruptcy lawyer. An attorney can help you look at different bankruptcy options that may help you now and in the future.
For example, choosing a Chapter 13 bankruptcy protects you from foreclosure and wage garnishments, while teaching you how to repay your debt and establish other positive money management skills over a period of several years.