Managing Spending and Avoiding New Debt After Bankruptcy[yoast-breadcrumb]
Managing Spending and Avoiding New Debt After Bankruptcy
Filing for bankruptcy can feel like a fresh start–your debts are discharged and collectors stop calling. But it’s important to change your financial habits so you don’t end up back in debt again. Here are some tips for managing your spending and avoiding new debt after bankruptcy.
The first step is gathering all your financial information in one place so you know exactly where you stand. Make a list of:
- Any debts not discharged in bankruptcy (student loans, tax debt, alimony, etc).
- Your income sources and how much you get paid.
- Your fixed monthly expenses like rent, utilities, insurance, etc.
Having all this info in one spot will help you make a realistic budget. You can’t manage your money wisely if you don’t know where it’s going each month!
Make a Budget
Now it’s time to make a detailed budget that accounts for every dollar. Your budget should include:
- Fixed expenses like housing, utilities, insurance.
- Flexible expenses like food, gas, entertainment.
- Savings – yes, you need to save even after bankruptcy!
- Debt payments.
Track your actual spending to see where your money is really going. Many people are surprised to see how much they spend on things like coffee, takeout, etc. Knowing your habits will help you make an accurate budget.
Cut discretionary expenses like cable, gym memberships, etc. Stick to needs vs wants – food, shelter, transportation to work. No eating out, vacations, shopping etc until you get back on your feet. Live frugally for now.
Can you pick up a side gig like Uber, TaskRabbit, or bartending on weekends? Even an extra $200-300/month from a part-time job can make a big difference. Selling stuff you don’t need anymore is another way to bring in cash.
After bankruptcy it’s important to start saving up a small emergency fund. Even $500-1000 in savings will prevent you from relying on credit when unexpected expenses come up. Once you have a starter emergency fund, start saving a little each month towards bigger goals like a used car or a rental deposit when you move.
Pay With Cash
Use cash or debit cards for daily spending – it’s psychologically more “painful” than swiping a credit card so you’ll be less likely to overspend. Leave credit cards locked up at home except for emergencies.
Find an accountability partner like a friend or family member who can support you and keep you on track with your budget. Share your spending plan and monthly results. Having someone to answer to helps stay motivated.
Avoid New Credit & Loans
It might be tempting to get a “fresh start” credit card or car loan after bankruptcy, but new debt should be avoided if possible. Every loan or credit card you add is another bill you have to pay every month. Ride out the bankruptcy and work on saving up to buy things in cash.
Start Repairing Credit
You may not be able to get new credit right away after bankruptcy, but you can start the process of rebuilding your credit score. Here are some tips:
- Always pay bills on time – rent, utilities, etc. Payment history is a big factor in your score.
- Become an authorized user on someone else’s credit card. Their good history will be added to yours.
- Get a secured credit card and use it responsibly by paying it off each month. This shows you can handle credit again.
- Check your credit report annually and dispute any errors – mistakes can drag down your score.
Get Help If Needed
If you’re struggling to pay for basic necessities, look into resources that can help – food banks, utility assistance programs, public housing, Medicaid, etc. Use a nonprofit credit counseling agency if you need help managing debt. Don’t be afraid to ask for help while you get back on your feet.
It takes time to recover from bankruptcy. Stick to your budget, build up savings, and work on improving your credit. With commitment and patience, you can avoid new debt and achieve financial stability. Be kind to yourself through the process – recovering from bankruptcy is tough but you can do it!
The most important thing is learning from past money mistakes. Bankruptcy gives you a chance to start fresh and build new financial habits. By staying organized, budgeting carefully, increasing income, and avoiding new debt, you can make sure bankruptcy was a one-time event and not the start of a cycle.
Recap – Tips for Avoiding New Debt After Bankruptcy
- Make a detailed budget accounting for all income and expenses
- Cut discretionary spending and live frugally
- Pick up side income from a part-time job or selling unneeded items
- Start rebuilding savings with even small amounts
- Use cash instead of credit cards to avoid overspending
- Find an accountability partner to stay on track
- Hold off on new loans or credit cards as much as possible
- Start repairing your credit by paying bills on time
- Get help from family, nonprofits, government aid if needed
- Stick to your budget and be patient – change takes time
With commitment and smart money management, you can avoid debt and create a stable financial future after bankruptcy. The process won’t be easy, but taking control of your finances now will pay off down the road. You’ve got this!