Common Post Bankruptcy Mistakes

Filing bankruptcy is a great option for many people who are unable to pay debts they owe to various creditors, but it is not without complication. Common misconceptions when filing bankruptcy often lead to detrimental post bankruptcy errors that can have a lasting impact on credit scores.

Ignoring the Need for Savings

Many people find that their ability to make necessary payments post bankruptcy is greatly reduced, and this causes them to ignore the need to save money for a rainy day—or even for retirement. What these people are not realizing is that saving as much money as possible for unexpected situations or retirement can prevent future situations in which bankruptcy may become necessary. Car repairs, leaky roofs and broken furnaces are all very expensive but very necessary repairs, and using a credit card to get those fixed presents a huge range of problems. Having enough cash on hand—or in the bank—to maintain proper living is a very important post bankruptcy undertaking.

Falling for Credit Repair Scams

Almost everyone has seen internet ads for credit repair companies that claim they can provide a debt consolidation loan in order to manage financial woes.

The truth is that these companies are in the business for the same reason as the credit card companies—to make money. Debt consolidation payments may seem like a great idea for someone who is paying more to creditors than they can afford, but the interest rates with these loans are incredibly large and makes them very difficult to pay off. The best way to avoid post bankruptcy credit damage is to avoid budgeting errors and stay away from debt consolidation loans in general.

Selecting the Correct Companies for Credit Rebuilding

Many credit card and loan companies promise consumers honest and fair reporting to rebuild credit. Although this may be the case, credit card and loan offers designed for people with poor credit—such as post bankruptcy credit—come with incredibly high interest rates, high monthly payments, or both.

Although it is true that the proper use of credit cards and prompt repayment of loans is the best way to build or rebuild credit, there are other ways to do so. For instance, many landlords and utility companies report monthly payments to credit agencies semi-annually. These payments do not impact a credit score as much as credit card payments, but they certainly do their parts.

Falling into Old Habits

Bankruptcy is often the result of poor financial management. One of the most important post bankruptcy tasks anyone can do is to seek adequate credit counseling to prevent falling into old habits that led to bankruptcy in the first place. These may include indulging in store credit cards, overspending, taking on more than the budget allows, or simply living outside of a family’s means. A strong budget plan that includes room for savings is the absolute best way to prevent post bankruptcy credit issues and create a good living environment for people who have filed bankruptcy and their families. Credit counseling is available for free in most states; government offices are great resources for this information.

Living Outside of Means

With the economy the way it is today, it is no wonder that so many people find themselves in financial distress and filing bankruptcy. Everyone likes to have nice things; a nice house, fancy cars, the latest technologies and iced coffees on a daily basis certainly make for a great life. The trouble is that these things are expensive and often difficult to maintain, and they take away precious funding for things like utility bills and savings accounts. In a post bankruptcy scenario, it is important for people to remember that they can often do without certain things, or find cheaper ways to enjoy their favorite little luxuries. Cutting back on non-essentials leaves more money for the things that are absolutely necessary.

Credit Cards

There are many positive arguments for credit cards, but in most cases they have no post bankruptcy purpose. Credit cards are great ways to pay for things when there is not enough cash on hand, but repayment terms for people who have filed bankruptcy are often very expensive and difficult to uphold. Credit card interest rates for people who have filed bankruptcy often soar above 35 percent, making it relatively impossible for anyone attempting to make monthly payments to pay off their debts—often leading to a second bankruptcy. A savings account is the absolute best way for anyone to make large purchases—they just may have to wait a bit longer to do so.

These are the most common post bankruptcy mistakes made by thousands of people on a daily basis. Although much of regaining a good credit history comes from using common sense, credit counseling is highly recommended for anyone who has filed bankruptcy.

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