Advertising
Advertising

Bankruptcy 101 – A Few Things You Need To Know Before Declaring

Bankruptcy 101 – A Few Things You Need To Know Before Declaring

Nearly everyone, at one time or another, has run into serious financial difficulty. There’s really no shame in that. It’s embarrassing when things turn so bad that we have to file for bankruptcy.

Since the most ancient times, people of all nationalities have undergone the very same financial problems we experience today. In the dim mists of the past, many money lenders sat on benches outside public buildings and plied their trade right there on the sidewalk, alongside barbers (who usually had dentistry or selling burial cover for cancer survivors as a sideline), and other small business people.

Advertising

The custom somehow developed that on those occasions where a money lender had made some bad loans and found himself no longer in a position to continue, he declared “bankruptcy”. The word bankrupt actually means broken bench. The former money lender would physically break his bench to indicate that he was no longer in business, thus declaring bankruptcy for all to see. There was no particular shame involved in those days and today, thousands of people all over the country “break their benches”.

This is a relatively simple procedure and normally an attorney handles everything. The moment the attorney takes your case, you may refer all calls from creditors to him or her and they are no longer permitted to harass you. The whole idea here is that when we get into honest difficulties and there is no other way out, we can wipe the slate clean and have a fresh start. For borrowers with federal student loans, Obama Student Loan Forgiveness program is a good route to go for as long as you are eligible, albeit we do not know if this program will continue on the next presidency’s term.

Advertising

That doesn’t mean you should deliberately go deeply into debt with the intention of slipping out from under it. The courts are pretty wise to all the dodges people have tried, so that sort of behavior could only denigrate your situation. Bankruptcy is for honest consumers who find themselves in serious difficulty.

While it takes 10 years to have the bankruptcy removed from your credit record, you may still be able to begin the process of rebuilding your credit. This can take time, but with care and perseverance, you can do a great deal to improve your credit score.

Advertising

These days, credit reporting institutions keep a record of everyone’s credit record. While the three major companies don’t always completely agree, their scores are usually pretty consistent.

One thing you can do shortly after having gone bankrupt is obtain a credit card, such as Mastercard or Visa. Now this isn’t quite the same as a regular credit card because, in essence, you buy it. You open an account for a minimal amount of money, say $100. And the institution issues you a credit card. If you handle this card properly, part of the company’s service is to report this to Experian and the other companies that follow your progress. After some time has past and you stay with the program, they will issue you a line of credit slightly larger than the amount you have on deposit, and so on. No matter where you stand along the way, your goal should be never to use more than 30% of the limit on any one credit card.

Advertising

It’s not a good idea to attempt to have old credit records expunged from your file. The longer you’ve been using credit, the better. It is, of course, vital to pay each bill on time and at the same time, not spend too much time worrying about your credit report.

If you keep card balances on target, pay your bills promptly and make certain you don’t buy anything you can live without until next year, by the time the 10 years are up and the bankruptcy disappears from your recent credit history, you’ll be on your way to better future with good credit and a smile to prove it.

More by this author

Junie Rutkevich

Game Developer of iXL Digital

8 Things You Should Consider Looking At When Buying A Home, Part 2 Zinc: The Usually Forgotten Micronutrient We Need Daily and Its Food Source How to Make Sure What You Sell Is What the Market Needs 7 Things To Consider Before Hiring An Advertising Agency Is It Necessary To Follow Traffic Rules?

Trending in Money

1 How to Use Credit Cards While Staying Out of Debt 2 How to Use Debt Snowball to Get out from a Financial Avalanche 3 How Personal Finance Software Helps You Get More Out of Your Money 4 The Best Ways to Save Money Even Impulsive Spenders Can Get Behind 5 How to Answer the Tough Question: What are Your Salary Requirements?

Read Next

Advertising
Advertising
Advertising

Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

Advertising

Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

Advertising

I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

Advertising

Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

Advertising

So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

Read Next