4 Steps To Bouncing Back After Bankruptcy

Bankruptcy sucks.

If you’ve gone through a bankruptcy and are looking to reach Financial Freedom, you probably feel as though you have a particularly long road ahead of you. Your available funds are minimal, your credit is shot and your future looks bleak.

But there is hope. We’ve put together this concrete action plan for dusting yourself off after a bankruptcy and getting moving steadily toward financial success.

1. Set Post-Bankruptcy Goals

In the wake of a bankruptcy wanting to spend some time wallowing is natural. Filing for bankruptcy can feel like a personal failure and an admission of total defeat.

But bankruptcy, however unpleasant, can mark an incredible turning point. After all, going through this process may have been the very best thing you could do to pull yourself out of crippling debt and set yourself up to start fresh.

So gather the wisdom you’ve acquired from learning money lessons the hard way and look to the future. Set realistic goals for yourself. Since you’re starting from the bottom and working your way up, create not only big goals — like owning a home — but also achievable, incremental goals. For instance, you might commit to living this week entirely on cash or completing the first module of Financially Fit Bootcamp.

Think carefully about where you’d like to be financially, now that your bankruptcy is in the rear-view mirror. Write it down so you can look at it every day. And give yourself plenty of mini-goals to keep you motivated as you work toward that shiny future.

2. Build Your Safety Net

One surefire way to head right back into debt and put yourself at risk for another bankruptcy is to avoid preparing for life’s crises. A job loss, an illness, a bad transmission — all of these events happen more often than we’d like, they pop up unexpectedly and they can cost you dearly. So it’s essential that you Protect Yourself, your family and your finances as much as you possibly can.

Start by building your Security Buffer, a dedicated account that holds the cash you’ll tap in case of a real emergency. Accumulating the amount you need to feel secure can take time. But starting early and automating your Cash Flow is key to getting from zero to protected.

Second, get your insurance policies in place. The right combination of coverages will cap your costs for any number of life’s expensive events — sickness, disability, death, home repairs, car accidents and more.

3. Rebuild Your Credit

Unfortunately, bankruptcy shreds your credit. And, even if you don’t plan to use plastic or take out a loan, your credit impacts your life — your ability to land a job, get an apartment, even sign up for a new phone plan. And bad credit can cost you in high interest rates, expensive insurance premiums and more.

Bankruptcy can stay on your credit report for 10 years. But note that, over time, the impact of that bankruptcy diminishes. And your credit score is weighted more heavily toward your recent financial behavior. So, the way you treat your credit after a bankruptcy is critical in getting your credit back on track.

What should you do? Well, if credit cards are your downfall, get rid of them. Or use a prepaid card that only lets you spend the amount you load onto it. If you do use credit cards, only spend what you can afford to pay off each month. Keep your spending low, and pay your bills on time every single month.

Regardless of whether you hold onto your plastic, you may still have some forms of debt to deal with — a home mortgage or loans that weren’t discharged during bankruptcy. (Student loans are one typical example.) Keep on top of your bill payments, as your lenders will report your behavior to the credit bureaus. And those agencies create credit reports that are used to determine your credit score.

4. Stay Vigilant

As you journey toward a healthier financial life and your ultimate goal of Financial Freedom, track your progress regularly.

Check your credit report and credit score on a regular basis. Small fluctuations in your score — 20 points or so — are normal, but look out for big dips you’re not expecting. Watch for errors and indications of fraud. If you find concerning data on your report, contact your credit bureau to dispute the information.

Steer clear of scammers who aim to take advantage of you during this difficult financial time. Don’t buy into a high-interest loan or credit card. And don’t believe any business that swears it can “erase” your credit problems. It’s simply not possible. The only one who can improve your credit is you through your continued display of fiscal responsibility.

Filing for bankruptcy is naturally a discouraging process. But, in the aftermath of this financial low point, you can establish real momentum on your journey to Financial Freedom. And you can rebuild real confidence in yourself and your financial powers.

image credit: Bigstock/artoleshko

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