We all know that mass amounts of debt don’t pop up out of the blue. Instead, many minor complications (running up credit card debt and missing or only making minimum payments) or a major event (divorce, job loss, medical bills) cause extreme debt.
If you decide to pursue personal bankruptcy, you are likely in a tight financial state and know that while bankruptcy will forgive you many debts, your credit score will take a significant hit for several years.
What can you do to improve your financial situation post-bankruptcy?
In one word? Budget. Budgeting correctly, especially during inopportune times, can be challenging to maintain. However, if done correctly, the habit can provide you a stable financial foundation and reliable education on money management.
To budget after bankruptcy, consider these tips:
- Track your expenses: This all comes down to understanding how you spend money. By writing down and tracking every cent you spend for a month, a clear picture will emerge, and you can identify how specific spending categories can be better managed.
- Steer clear of (almost all) credit cards: Especially as you are recovering from bankruptcy and changing your financial habits, getting an unsecured credit card could spell disaster. The first card you should consider is a secured credit score, which can help improve your credit score because you fund the card’s balance.
- Limit non-essential spending: Once you have tracked your expenses for a month, look for areas that you can trim or cut out. A common area that people spend too much money is eating out. If you buy lunch every weekday, cut that down to one or two days and cook your own lunch for the remaining days. You may have multiple streaming services like Hulu, Netflix, Amazon prime, and a cable streaming service. While diversity is nice, it’s not essential. It’s all about conservative spending.
- Save and then save some more: For a few years, your financial outlook may seem grim, but if you budget correctly and save, you are putting yourself on a fruitful recovery path. Everybody’s budget is different. Many financial experts say that 20% of each paycheck should go toward savings, but that’s not realistic for everybody, especially many people recovering from bankruptcy. Save what you can, but stay consistent.
Lastly, look into budgeting apps. There are many worthwhile budgeting apps and computer programs out there to help you on your journey, and some will track your expenses for you after a little leg work.