Wise use of credit after bankruptcy
A “disguised” reaffirmation agreement
You may receive offers from companies that appear to be creditors that you included in your bankruptcy. Debt collectors often use this tactic to lure you into reaffirming the debt. Carefully read the fine print on offers to obtain new credit. The problem is where they say your new account balance will include some if not all of your paid off debt.
“Secure” credit card
New bankruptcy filers may also be directed to a “protected” credit card marketing scheme. A single bank deposit guarantees the balances on these cards. The card limit is however much you score. The account is subsequently depleted if you cannot get the money for the payments. If you can regularly make payments each month, they can be a good way to prove that you have become fiscally responsible. However, lenders have no reason to believe they can use your deposits as collateral, as almost anyone can get a “secured” credit card despite their history. Additionally, limiting your account is not recommended.
Credit repair companies
Keep your eyes open for companies that say they can erase your bad credit. As expensive as these services are, they are a waste of money as they are often scams. The fact is that bad credit simply cannot be erased as long as it is legitimate. However, you can correct outdated or incorrect information free of charge.
Avoid high-cost predatory lenders
Filing bankruptcy doesn’t mean you have to accept the worst credit terms. You always have the option to wait a while after you submit for your terms to improve. Over time, if you can prove that you’ve become fiscally responsible, many lenders won’t let your bankruptcy get in the way of your future financial actions.
Often lenders, car companies and even mortgage brokers will tell you that bad credit will not affect your business with them. Their intention is to outrageously charge you on the loan. They purposefully make the text absurd to think you can reasonably continue to make the payments. Any possibility of rebuilding your credit immediately becomes unrealistic.
Mortgage
Owning a home gets you offers from contractors, brokers and lenders interested in lending to you, regardless of your past financial standing. Unfortunately, the costs and eventual problems that arise from these loans can lead to the loss of your home. Turn down or even avoid mortgage lenders who do the following:
– They nail you with fees, termination fees and exorbitant interest rates.
– Get you to reconfigure your mortgage or catch up on debt.
– Include insurance or other unnecessary products.
– Asking to charge you minimum monthly payments or different initial interest rates.
– Have you set aside a lump sum to pay off a generous amount of your loan. This is called a “balloon” payment.
– To punish you for paying at the bar before you did.
– Change in closing conditions.
– Promise a rate cut if your payments are on time.
– I am constantly asking you for refinancing.
Small loans
Saving money to pay for unexpected fees is always a good idea so you don’t have to borrow money. If your finances really require a loan, stay away from these expensive loans:
Payday loans
You may be contacted by a cash advance company who will offer to hold your check for a few weeks. Instead of your check, you receive an amount less than your original check. At the end of the holding period, you get the amount of your check minus the interest they charge. This process ends up being significantly expensive. For example, if you get $200 on a salary of $256, that $56 they hold works out to be 728 percent interest. If for some reason you can’t repay the loan, the company may try to squeeze more money out of you or even sue you. Writing another check just creates more debt and you’re worse off than you started.
Car title loans
Like pawn shops, lenders can trade your property for high-interest loans. Lenders have adopted this method by trading your car title as collateral for a loan with interest rates that can be as high as 800 percent. Failure to make payments on time may result in your vehicle being repossessed and possibly sold.
Rental
A rental company can charge you up to four times what it costs to buy an appliance on the spot. Previous customers may have even used the item you paid for, leaving the company with even more benefit. They can then turn around and take the item back if you fail to make a payment and end up not earning credit for your previous payments.
Advance tax refund loans
Tax preparation companies sometimes offer on-the-spot tax refunds by making loans based on estimated refund amounts. The loan period is the short time between when you should receive your refund and when you file your return. Interest rates can exceed 200 percent. The recommendations are to be patient while your refund is being processed.
What you can do to avoid problems
– Don’t buy. If you doubt or have any doubts that the service will be available or even needed, do not accept it. Sellers will try to get you to do it any way and every way. Fortunately, you can change your mind at any time, even right before you sign on the dotted line.
– Use comparison shopping. Just because you’re eligible for a normal rate bank loan doesn’t mean you have to settle. They rely on you to believe that this is the best you can do. Letting go of any shame or embarrassment about your situation will help you have the courage to shop around and get the best deal possible.
– Analyze the conditions. Monthly payment amounts should have little bearing on your decision. Also look at the APR, as this number includes other fees that come with the loan. Find out about all the fees you are being charged and more importantly why.
– Ask a professional. Please read all documentation carefully before signing. If you have any questions, don’t hesitate to contact a professional for help. If for some reason the lender does not allow outside help, it is not trusted.
– Know your rights. When it comes to refinancing mortgages, you legally have up to three days to cancel from the time you sign. Use this right to your advantage if for any reason you think you got a bad deal. Go with your gut, even if the lender tries to prevent you from canceling.
– Start sooner rather than later. Once you know you’re in financial trouble and wondering how to manage your debts, ask a debt agency for help.
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