The day you’ve been dreading has finally arrived: your car broke down and it will cost more than it’s worth to fix it. And even though buying a new car should be a lot of fun, you’ve been putting it off because you know you don’t have the money to purchase it outright, and you’re uncertain about your prospects of getting a loan (since you recently filed for bankruptcy). It’s the same reason you’ve avoided looking at houses, despite the fact that it’s a buyer’s market and you’re ready to settle down and start a family (which certainly won’t fit in your one-bedroom apartment). But bankruptcy isn’t the end of the world. In fact, if you’re smart, you’ll look at it as a new beginning. Certainly it will be an uphill battle, and you must be prepared for the fact that it will take you a long time to build up your credit again. But you’ll be doing it without having to face a mountain of debt, which puts you decidedly ahead of the game. And despite the black mark on your credit report for the next several years, you can take steps now to get the loan you’ll need down the road. Here’s how.
1. Learn to budget. Some people have to declare bankruptcy because of a situation beyond their control, such as illness or injury (with attendant costs not covered by insurance), or job loss. But most of us simply never learned how to budget properly and paid the ultimate price for it. So first things first. In order to avoid making the same mistake twice, you need to learn to live within your means before you can even think about your credit. Write out a comprehensive list of income versus expenses and make sure you’re earning more than you spend!
2. Learn to save. This is a hard pill to swallow for most people. You work hard for your money and you want to spend it. But again, this is part of what got you in trouble in the first place. So once you’ve paid your bills and allotted yourself a little spending cash, put the rest into savings (and don’t touch it!). An even better plan is to automatically remove a percentage of each pay check to your savings, and whatever is left over can be your fun money.
3. Reduce bills. If you’re going to rebuild your credit, the best way to start is by reducing expenditures. Paying $100+ a month for your cable/internet/phone package (plus another fifty for the cell phone)? Cut it down to $30 for cable, get Netflix and Hulu Plus (for TV and movies at a combined cost under $20), and spend the other $50 on a cell phone plan (get rid of home phone, which you don’t use anyway). You’ll actually be spending less because you would have had the cell anyway. Now look at all of your expenses and find ways to likewise reduce them.
4. Get a secure card. You might have trouble getting a credit card after bankruptcy. This is actually a godsend because the last thing you need is a line of credit you can’t afford to pay. Instead, build up your savings and get a secure card. It is usually obtained through your bank and you must give them money as collateral. For example, a card with a $500 limit will require you to sign a $500 check over to the bank to hold (in case you fail to pay). At the end of a year, you’ll get your money back (plus interest) and keep the card. You’ll also be on the path to rebuilding your credit rating.
5. Talk to a loan agent. Your final step is to talk to a loan agent. While you can certainly take out a bad-credit loan, you’re going to pay a ridiculous amount of interest on it. Instead, ask an agent at a reputable lender what they require from you in order to offer a loan. They’ll tell you how much cash you need for a down payment and the minimum credit score required to qualify, which will give you something to work towards.
Emma Martin writes for Auto Payment Calculator where you can find information on shopping for a new car and much more.
