For those considering bankruptcy, you may be worried about the decision plummeting an already-suffering credit score into a hole you can’t dig yourself out of. But bankruptcy is meant to help you get back on your feet and credit scores are subject to change.
Here are a few tips to help you budget efficiently to improve your credit score after bankruptcy.
Track your expenses
Keep your own record of every time you spend money. While this data may be stored in your bank statement, reflecting on your spending every day will help you see how expenses add up and which ones can be cut.
Budgeting may require you to forfeit some luxuries. It also may require you to redefine “luxury” to a more suitable standard.
For instance, purchasing meals that are prepared for you in a cafeteria, restaurant/café or even the grocery store may be considered a luxury. Purchasing raw ingredients and preparing them yourself can cut costs significantly.
In some cases, driving or taking a taxi may even become a “luxury” that you will need to forfeit for lower-cost alternatives, such as riding a bicycle or taking public transportation.
Cover necessary expenses first
Once you have redefined luxury costs, you’ll be better able to discern which expenses are absolutely necessary.
For instance, you may need to make mortgage or rent payments each month. These necessary costs should be covered on the day you get paid. If you can’t cover the entire payment with one paycheck, pay or save the percentage you can afford each time you are paid.
Try to think about what you would need to pack into one suitcase to travel for a week. Then, think about whether you can swap out any of those items to satisfy the same need for a lower cost. Notice that a cable subscription may not be included in your suitcase. However, you might substitute it for a book.
Making sacrifices won’t be easy, but it may be necessary to meet your budgeting goals.
A useful tip for managing finances is to create an emergency fund. However, in doing so, it’s important to define “emergency.” This fund should only be used for substantial financial demands that surprise you, such as an unforeseen medical issue or a loss of employment.
If you are using your emergency fund for rent or mortgage payments, you need to re-budget to include these necessary expenses without using your emergency fund.
Use a secured credit card
Your bank may offer a secured credit card (with high interest rates and fees). A secured credit card requires you to pay a deposit and usually matches the credit limit to the deposit you pay. This can enforce better spending habits by only allowing you to make purchases if you have the funds available.
Talk to an attorney
An attorney can help you navigate bankruptcy and prepare a plan that sets you up for financial success. Contact an attorney to get a more comprehensive plan for your unique financial situation.