As always, I enjoy getting emails from readers of the “After Bankruptcy Canada” blog. Congratulations to those of you who have, or are well on the way to getting your life and your credit back on track after your bankruptcy. But lately, I’ve been getting some disturbing emails – either hinting towards financial hardship or outright telling me so.
Short of Money? Wishing for the Bill Fairy to pay your bills?
Now, unless there’s a very good reason someone cannot work and bring home an income, like a serious injury with no Worker’s Compensation, a layoff or job loss resulting living on a smaller amount of money through EI (Employment Insurance), maternity leave or welfare, or caring for elderly relatives, there should be NO excuse for being short of money, getting behind on bills and not rebuilding credit. The “Bill Fairy” isn’t going to magically appear and pay those bills!
Myth: Bankrupt People Have No Money
Even if you didn’t know where to start or what to do, this website offers a wealth of excellent free resources and hope for getting your life and your credit back on track after bankruptcy in Canada. A common misconception is that people who are bankrupt have no money. WRONG! If you’re still working, you should have a lot more money available to you now that you don’t have all those bills and old debts to pay off. And hopefully you’ve increased your income through finding a better job, getting a promotion, working more hours, taking on an extra part time job or working from home on the side – especially for couples where both of you increase your take home pay!
Don’t Wait! Start Today!
It seems every ex bankrupt Canadian wants to improve or rebuild his or her credit. Great! Stop living on a cash-only basis like you were forced to do during the time you were an undischarged bankrupt. You are now allowed to obtain and use credit. One of the first things you should do is clean up your credit reports to get rid of incorrect or unverifiable information and then get at least one secured credit card (which is likely the only credit you’ll get after a recent bankruptcy, short of a cell phone plan with a security deposit). Without this, you will never improve your credit.
Myth: Live on Cash & Stay away from Credit for 7 years
Some people mistakenly believe they should stay away from credit for 6 or 7 years until the bankruptcy falls off their credit reports. This will not help you. Of course, if you stay away from credit, have nothing in your name and pay cash for everything, you certainly won’t incur any bad debt. But you also won’t build up your credit or have a chance at good debt, like getting a mortgage on a house. Why wait 6 or 7 years to start rebuilding your credit? Start NOW, and then when your bankruptcy falls off your credit reports in 6 years (providing it’s your first, and hopefully last bankruptcy), you’ll have a high FICO credit score and several well established lines of credit. Imagine the possibilities!
Eliminate Excuses For Not Getting A Secured Credit Card!
One of the more common themes I’m hearing is that some of you ex-bankrupt Canadians know you should get a secured credit card (like a Home Trust secured Visa or Peoples Trust secured MasterCard), but don’t have enough for the minimum $500 security deposit. Start saving! There’s not much credit available to Canadians with a recent bankruptcy. Many lenders, like those who can give you a car loan or a mortgage, will want to see at least one to two years of reestablished credit after your bankruptcy discharge. The sooner you get that secured credit card, the sooner you will start rebuilding your credit.
And what if you don’t have $500 to send away for the security deposit? I didn’t have that much money either. So, I made it a priority to save up $500 as quickly as possible. Let’s say you work 25 hours a week at minimum wage. That amount will vary depending which province you live in. Yes, that’s probably putting you below the poverty line. I was there too. But could you save $50 from each paycheque? Let’s say you get $400 every two weeks and live paycheque to paycheque. By skipping a few meals at restaurants, daily coffee and muffins at Tim Hortons or skip going out with friends on Friday nights, you could have that $50 from each paycheque. That’s $25 a week. It would take you 20 weeks, or roughly 5 months to save $500. Yes, that’s almost half a year you’ll have to save up. But think of the alternative… if you DON’T save up, you may NEVER be able to reestablish your credit. So waiting half a year to start resetablishing your credit doesn’t sound so bad now, eh?
That was an extreme example. Many people make much more than that. But even someone working part time at minimum wage could do it. Imagine if you work full time and make a bit more, or a lot more than minimum wage! Could you save $100 a week (that’s $200 from each bi-weekly paycheque)? You could save up, send the application with the security deposit and probably have the secured credit card in your hands in less than two months!
And don’t forget to keep saving to increase the credit limit. It’s easy to max out a $500 credit limit. Until you can increase the credit limit, try not to charge more than 20% to 30% of the available credit as it will lower your credit score if you’re coming close to maxing out your cards.
Avoid Getting Behind On Bills Like Before
If you’re like me, you probably went bankrupt because you let a few bills slide. Before you knew it, you were two or three months behind on a few bills. By that point, even if you put your whole paycheque towards paying those bills it wasn’t enough, not to mention new bills kept coming in. Or maybe you were keeping current by making just the minimum payment whenever possible, like on revolving credit card debt. This could be made worse by giving in to wants as opposed to needs, or treating yourself to something more expensive than you really needed when a cheaper version would do.
This is the worst thing to have happen to you. Whereas someone who has not been bankrupt might get away with a few late payments, us ex-bankrupt folks won’t! Many lenders, who are already hesitant to extend credit (secured or unsecured) may outright decline your application for credit if they see just one late payment. Even if it was just one day late. So, as soon as you get your bills, pay them! Don’t wait until the last minute or the payment could arrive late.
If You Keep Doing What You Did Before….
You’ll continue to get what you always got if you don’t change your ways. Hopefully bankruptcy was a wake up call for you was it was for me. It’s your chance to finally get ahead. Most, if not all of your debts were wiped out. Prove to yourself and to others that you’ve changed and improved. There’s no point declaring bankruptcy and then continuing on the way you were before. You’ll have a horrible credit rating for your entire life!
Hint: It’s easy to keep on top of your bills when you use an Automatic Bill Payment method.
Maybe you’re not behind on bills, and never were even before you declared bankruptcy, but you were all maxed out with no hope of ever getting caught on a huge pile of debt. Don’t let that happen again! Hopefully by now you’ve learned something and will know the warning signs.
If you’re having trouble following a budget, follow a system. If you’ve got your aspirations set really high (which I highly encourage), try something like the methods set out by multi-millionaires Robert Kiyosaki or T. Harv Ecker. If those seem too lofty for you at this time and you want to try something that seems more “realistic” at this point, I highly recommend reading “Debt Free Forever” by Canadian money guru, author and TV personality, Gail Vaz-Oxlade.
I don’t want to see any of you have to declare bankruptcy again. I also don’t want you to face some of your old circumstances that may lead you to getting behind on bills or overwhelmed with debt again. The “Bill Fairy” won’t come and magically pay your bills! So, keep on top of things and get your life, and your credit, back on track.