Borrowing after Bankruptcy – It Can Be Done
Filing for bankruptcy was one of the most difficult decisions of your life. Now you need to rebuild your credit in order to move forward with your life and in order to do so you’ll need to open a new credit card account or take out some type of new loan. There are several things you can and should do before borrowing again to ensure that you don’t find yourself in the same overwhelming situation you just escaped from.
Help on Borrowing After Bankruptcy
What Can You Afford?
The first thing you should do, before even applying for a loan or credit card, is to review your budget to determine exactly what you can afford. The numbers you come up with need to be exact as estimations are bound to get you into trouble. Create a budget by comparing the exact amount you spend on bills and expenses to your monthly income. What amount is left over at the end of the month?
Once you know how much money is leftover you’ll want to determine exactly how much money per month you’ll need to spend if you do take out a loan. We’re assuming, in this case, that you are taking out a loan or opening a credit account for a very specific reason so this figure should be easy to determine. Is the amount of your monthly loan payment less than what you have left over in your budget? If so, you can afford the loan.
When you review your budget you should leave a cushion for emergencies. If taking out a loan means you’ll never be able to put money into savings or that you will not have any money left after paying all of the bills than you really can’t afford to move forward.
Loan Agreements & Hidden Fees
Sadly, many credit card and loan companies use the fine print in their agreements to trick consumers. You’ll want to take special care to read the agreement in its entirety before signing. As you read, watch out for the following:
- Yearly cardholder fees,
- Overdraft fees,
- Late fees,
- Charges for paying early, and
- Fluctuating interest rates.
Many of these fees may seem trivial but over time can result in your loan or card payments increasing significantly, blowing your budget completely out of proportion. Understanding when you might be charged fees or when and why your interest rates might change will help you to plan in advance and determine if the loan is the right one for you.
Avoiding Predatory Lenders
Sadly, there are quite a few unscrupulous lenders looking to take advantage of individuals who don’t really understand lending practices and how they work. They’re especially looking to take advantage of people who have just filed for bankruptcy – knowing that your slate has been wiped clean and believing you have money to spend. They’ll trick you into taking out a loan to rebuild your credit and then switch you to another program, flip your loan to another company, or take part in some other practice that will result in you paying more than you had intended.
You have the right to rebuild your credit after bankruptcy. Make sure you read every document you receive before making a final decision and, if you need help, consult your bankruptcy attorney for advice.