Tips To Help You Recover From Bankruptcy - Tax Professionals Member Article By Dennis Jao
Posted by Dennis Jao

Tips To Help You Recover From Bankruptcy

Tips To Help You Recover From Bankruptcy

After bankruptcy, the steps you take can set the tone for your financial future. Learn to take the right path.

Every financial condition that leads to bankruptcy is different, but the result is often the same: your credit is ruined, and you risk up to ten years of bankruptcy on your credit report. But you will get a probable debt-free start and the chance to avoid any past financial mistakes.

Now you can focus on recovering from ruining your credit and putting your financial life back together. These important steps can help you develop good financial habits to rebuild your credit.


Ways to Recover After Bankruptcy


Identify your bad financial habits

If you know what made you fail, you will know what actions and habits to avoid in the future. This may not apply if you have incurred debt due to a serious medical condition or something similar which has not been checked. But mismanaging your finances or spending more than you can afford can quickly lead to bankruptcy if something unexpected happens.

This could include job loss or divorce. Unexpected financial stress may have taken you by surprise, but you can prepare better this time. Include an emergency option fund in your financial plans, along with other solutions to past bad habits.


Check your credit report.

Frequently reviewing and monitoring your credit report after bankruptcy is especially important. This will give you a starting point to know where you are and a tool to measure how far you will go in the future. It is also essential that you make sure to read your credit report for any errors.

Filling out credit report errors can help you remove obstacles that may be blocking your credit repair process. As you correct your mistakes and continue to monitor your report, check your progress at the same time. Your credit report is directly linked to your credit score, so your score is likely to improve when you see positive information reported.


Set financial goals

Setting and tracking your financial goals will help correct bad financial habits and even help you manage financial stress. If you have realistic and clear short- and long-term goals in mind, it can be a lot easier to focus on managing and changing your financial situation.

Your goals will be distinctive to your situation but may include a long-term goal to increase your credit score to 600 or more. This goal may involve several short-term goals, including gradually introducing credit products into your life.

Always ensure to keep track of your goals so you can see how far you've come and get the motivation you need to move forward.


Set up automatic payments

Timely payments play an important role in your positive credit history, accounting for nearly 35% of your FICO® score, which is one of the most used credit score models. Consider using the auto-pay feature if you want to make sure you don't lose any payments.

AutoPay is generally available for most accounts and allows you to set up once a month to automatically withdraw funds from a connected bank or credit account to pay your bills. This can help you avoid late payments and rebuild your credit.


Create a budget

Having a budget can help you learn how to pay off your debts by limiting your overhead costs. This usually involves summing up your monthly income and expenses and seeing where you can cut them. When you know where your money is going, it can be easier to make changes and stay on top of your financial goals.

There are different styles of budgeting, from simple to complex. Still, the budgeting process can be as simple as allocating revenue to necessities, including food and utilities, and then putting some of that which remains in savings.

It may also be worth considering putting your money in a high-yield savings account. The best savings accounts offer above-average interest rates that can help you grow your funds over time.


Consider a reputable credit repair company.

Financial opportunities may be limited after bankruptcy, so it may be a good idea to seek financial advice from a reputable credit repair company. The best credit repair companies can help you remove negative items from your credit report, which can boost your credit score. Some even offer valuable financial advice that can help you get your finances back on track. Remember that credit repair services cost money, so consider the pros and cons of using them before making a decision.


Develop a positive payment history

Setting up your automatic payment can help you avoid missed payments and build a positive payment history. But if you want to take it a step further, consider using a tool like Experian Boost™ to get better credit scores.


Avoid taking out high-interest loans.

Your credit score will be affected after bankruptcy, which means you may not be able to get the best interest rates on your credit card or loan. It can be tempting to take out a loan if you need cash, but large repayments can be weighty, and you might not be able to keep up. This can easily lead you into debt and further damage your credit.

If you're losing sleep over money, make sure you have a plan in place before deciding on a high-interest loan. You need to make sure you can make the payments and that the lender is trustworthy and easy to work with. But in general, a high-interest loan is probably not worth taking out unless you have other alternatives.


Get a credit-builder loan.

Credit builder loans are unlike the typical personal loan, where you borrow money and pay it back with interest over time. Instead, these loans typically hold the borrowed money until it is fully repaid and then released to you. So if you need quick cash, this is probably not the way to go. But if you intend to build your credit history, a credit builder loan can be a great idea.

When you repay the loan responsibly, your positive payment history is reported to the credit bureaus to improve your credit score. This is an opportunity to build your credit history when you may not qualify for other credit products.


Go with a secured credit card.

A secured credit card can help you build your credit history if you have little or no credit. These cards generally require a refundable security deposit to be eligible, which will act as a line of credit on the card. So if you deposit $300, you have a line of credit of $300.

The best-secured credit cards report payments to your credit bureaus on time to improve your credit score. Plus, secured credit cards work like regular credit cards, so you shouldn't have to worry about using them for everyday in-store or online purchases.

Some secured credit cards may offer higher credit limits overtime or may give you the option to upgrade to an unsecured credit card. This means that the security deposit restriction will be lifted, the deposit will be refunded, and you will be granted a typical line of credit.


Get a regular credit card.

Your credit score may decline after bankruptcy, but you will always have the opportunity to rebuild your credit with various credit products. This includes bad credit cards, with more than a few options to choose from. You can expect potential revenue from these cards to be scarce, and some of them may have annual fees or security deposits. But to get back to pre-bankruptcy credit levels, you have to start somewhere.


Bottom Line

Bankruptcy is not the end of the road for your finances. This is far from the case. These pointers can help you get back on track and help provide practical steps you can take immediately after a bankruptcy. It can be hard to see where you can end up over time, but setting short-term and long-term goals can help you keep track of your progress and move forward.

If you are considering filing for bankruptcy, be sure to weigh the pros and cons of bankruptcy in your life before making a decision. It can ruin your credit, so you'll have to rebuild your credit history from scratch. But you can help eliminate the qualifying debt at the same time. Considering these and other factors can help you make the best decision for your financial future.


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Dennis Jao
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