Bankruptcy Questions Answered

Tips for Reducing Your Credit Card Bill Now

Anyone struggling with debt or trying to rebuild after a bankruptcy filing probably knows how challenging credit card bills can be: though the plastic rectangles themselves may be highly convenient, the monthly payments we make on them often are not.

And, with the economy tighter than the lid on a pickle jar, posts like this one are useful. It outlines some ways to minimize the amount you owe on your credit card without significantly altering your lifestyle (which, for many of us, may be impossible at this juncture).

Steps Toward Less Credit Card Debt

• Pay earlier than you have to: If you have a revolving balance on your credit card (meaning that you don’t pay the full amount you owe each month), interest is charged to that amount every day, so that the longer you wait to pay your bill, the more interest accrues. If you can pay even a few days before the due date, you can save yourself a little bit each month. And, if you know you have a revolving balance and have online payments set up, you don’t have to wait until you receive a bill to make a payment—if you get unexpected cash in the middle of the month, you can funnel it toward your credit card debt before it disappears into groceries.
• Pay more than you have to: The Credit CARD Act requires credit card bills to indicate how long it will take you to pay off your entire debt by making only minimum payments, which is a nice feature. It reminds us that the minimum payment is not designed to ease our monthly burdens—it’s designed to make money for the credit card companies and stretch our payments out over a long period, over which we’ll pay plenty of interest. Whenever possible, send more than the minimum payment. Ideally, aim for paying your card in full each month.
• Double check your bill: Next time you receive a bill, review all your purchases, especially regular monthly subscriptions and memberships. If you could conceivably do without any of them, cancel and save some money each month. Remember that most libraries carry lots of magazines and a lot of content is available online. Plus, memberships are designed to make companies a profit—so if you aren’t absolutely dependent on yours, snip them out.
• Leave home without it: While it’s easy to justify carrying a credit card in case an “emergency” happens, having the card with you at all times can be dangerous financially. Try keeping it at home for a week and noting how different your buying habits are. If nothing else, this exercise should open your eyes to when and how you tend to use your card—and how you could limit or eliminate unnecessary purchases.
• Rethink outings with groups: Eating out can get expensive—especially if you frequently put the group’s meal on your card and everyone gives you cash. It’s far too easy to use that cash for something other than paying your credit card bill, and meanwhile you could be paying interest for everyone’s dinner. Suggest a night in every once in a while, or arm yourself with cash.

Have other tips for cutting down credit card debt? Leave them in the comments!

Posted in Credit After Bankruptcy, Financial Literacy, Life After Bankruptcy, credit card bankruptcy | Comments Off

Credit Cards After Bankruptcy

After a bankruptcy filing, many people are reluctant to wade back into the world of credit, often because too much credit allowed them to build up the kind of debt that pushed them into filing for bankruptcy in the first place.

But, as many financial analysts note, rebuilding credit is an important part of recovering from personal bankruptcy. Here’s an outline of why and how to know if you’re ready to apply for a new credit card. For a more detailed look, check out this article from BankRate.com.

Credit after Bankruptcy?

Put simply, you need credit because in contemporary American life, your credit history plays a major role. Specifically:

• Housing: Many landlords check a person’s credit report before determining whether to rent to her. Theoretically, because a credit report includes a history of payment of various debts, it can give a landlord an idea of what kind of renter you’ll be (i.e. whether or not you’ll pay rent on time).
• Employment: It’s also common for employers to check the credit report of a potential employee. Some lawmakers are trying to see this practice changed, but for now you can expect a job application to include someone peeking at your credit report.
• Loans: This is perhaps the most important reason to reestablish credit. Whenever you apply for a loan (whether it’s a credit card, a mortgage or something between), the lender will check your credit. The terms of your loan will generally be based in large part on your credit score and the information in your credit report. Those with a strong history of paying loans on time are decent risks for lenders and so can be offered lower interest rates. And the reverse is also true.

But having no credit history at all means that potential landlords, employers or lenders would have no way to gauge what kind of risk you’d be to them, and so might deny you whatever it is you want.

When to Apply for a Credit Card

This depends largely on you and your financial habits. The BankRate.com article suggests considering these factors:

• How you’ll use it: The best way to use a credit card is to use it like cash. In other words, only buy with a card what you could afford with cash. That way, you can pay your bill in full at the end of each month. Cards grant you certain conveniences (like online shopping), not a license to spend.
• Why you filed for bankruptcy: If something unexpected like a divorce, death, illness or job loss led you to file, consider saving up about two months’ expenses before applying for a card. That way, if another emergency crops up, you won’t be tempted to run up a balance on your card.
• What card you’ll get: There are a lot of credit cards out there. Do plenty of research and find one that suits your needs. And if you can’t qualify for anything but cards with outlandish fees, wait a bit longer and try again.

Posted in Credit After Bankruptcy, Credit Cards, Credit and Bankruptcy, after bankruptcy | Comments Off

Life and Credit after Bankruptcy

One of the most enduring myths about filing for bankruptcy is that it "ruins your credit" for ten years. While many myths about bankruptcy are misleading, this is one that needs to be debunked, once and for all.

A recent article from the New York Daily News examines the question of exactly what happens to a person's credit after a bankruptcy filing. In it, bankruptcy attorney and President of Total Bankruptcy Kevin Chern explains why filing for bankruptcy does not mean permanently sabotaging your finances.

Bankruptcy and Your Credit

Here are some key points to keep in mind about how filing for bankruptcy will affect your credit:

• Your credit before bankruptcy: Most people who need bankruptcy protection don’t have great credit to begin with—their debt-to-credit ratios tend to be high, and that’s a key risk indicator to many potential lenders. In fact, the financial difficulties that lead people to bankruptcy filings are incredibly detrimental to credit ratings.
• Your credit after bankruptcy: When you receive your bankruptcy discharge, your discharged debts should be removed from your credit history, meaning they no longer hold you down. True, evidence of your bankruptcy filing stays on your credit report for 10 years, but its impact diminishes with time (a single bankruptcy filing should not "ruin" your credit for a decade).
• Overall credit health matters: Credit reports work because they combine various financial indicators to provide potential lenders with a snapshot of someone’s financial life. Someone who has filed for bankruptcy and stayed ahead of her debts since then will likely seem more attractive than someone who has not filed for bankruptcy but has delinquencies and defaults sullying his credit.

Getting Loans Again

The Daily News notes that most personal bankruptcy filers can expect to start getting credit card solicitations in the mail within two years of filing for bankruptcy—in other words, credit becomes available far before the ten-year doomsday benchmark commonly repeated.

But remember: it may be best to wait a while after a bankruptcy filing before applying for credit cards again, because the first offers may come with very unattractive interest rates or fee schedules.

For a more in-depth exploration of improving credit after filing for personal bankruptcy, check out these credit-rebuilding tips and this four-step method for regaining financial stability in your post-bankruptcy life.

Posted in Bankruptcy Myths, Credit After Bankruptcy, Setting the Record Straight about Bankruptcy | Comments Off