Major financial setbacks such as foreclosure and bankruptcy can send people reeling. However, hitting rock bottom financially is also a powerful place to begin anew. The time after foreclosure and bankruptcy is a valuable opportunity to completely rebuild your relationship with money and finances. After all, you can only go up from here.
From living without credit to talking about financial setbacks with employers and landlords, we have a few tips to help you regain your financial health. Although the experience of losing one’s home or declaring bankruptcy isn’t easy, your finances will eventually bounce back. Whether you couldn’t pay your mortgage payment and lost your home, or had to declare bankruptcy because of inescapable debt, these tips will help you get on the road to recovery:
Your New Life Without Credit
If you’ve filed for bankruptcy or gone through a foreclosure, it’s very likely that you’re behind on multiple accounts, your credit score has been severely impacted and your access to credit halted. Luckily, you’ll still have resources at hand: chiefly, your income.
The key to surviving a financial setback is to live below your means, so living without credit can be a blessing in disguise. As there will may be a period where credit will not be available, use this time to create a cash budget where you pay for everything with what you already have in cold hard dollars.
Even after bankruptcy or foreclosure, credit card offers will start to come in about 18-24 months. Use your credit cards wisely. Be careful of the APR, as many of the cards will have high interest rates because lenders will be wary of your history. Use the credit cards for small purchases to build your credit, and be sure to pay off the balance in full every month.
Developing Good Financial Habits
The most important thing you can do after bankruptcy or foreclosure is to develop good financial habits. Not only will they help you regain control, lenders will want to see proof of your good habits before lending again.
Start right away by building an emergency fund of six months’ worth of expenses. This creates a buffer that will keep you from sliding back into the circumstances that led to bankruptcy or foreclosure. If that seems overwhelming, set yourself the goal of $1,000 in the emergency fund to get the ball rolling.
Next, make it a habit to pay bills on time. If the bill is due on the 1st of the month, pay it a week before. That way, you’ll never get behind on bills, and your credit score will steadily increase over time. If you still have some type of debt that you’re working to pay off, it’s important to stay current so you can rebuild your credit. Even student loans can hurt your credit score if you make late payments. As you go about repairing your finances, keep learning about different financial products, like how mortgage interest works, how credit card fees can be avoided, etc.