Managing Credit Card Debt
One of the most common types of debt found in a bankruptcy is credit card debt. Credit cards have become fairly easy to obtain and many people get behind on the payments despite best efforts to limit spending and budget wisely. Then the interest and penalties start piling up, leaving you feeling trapped. Fortunately, most people with high credit card debt can completely discharge it and many other unsecured debts through a Chapter 7 Bankruptcy.
What to do with the credit cards I already have?
A debtor who is considering bankruptcy should not go out on the eve of bankruptcy and max out his credit cards. This type of activity could be considered fraudulent and could lead to the loss of your discharge. If you have been using your credit cards recently then you should make sure your attorney is aware of how much and when you recently charged on your cards.
The first step to a fresh start is to speak to one of our experienced attorneys to learn more about the local laws that may affect your choices as well as answer any of your questions.
Some people think that after filing a bankruptcy their credit is ruined for life. This is simply not the case. Many people can rebuild their credit scores within a couple of years. After a few years most people can see their credit scores improve to where they can purchase a house or car on credit.
One can accelerate the improvement of their credit score by following a few simple rules. After filing a bankruptcy a person should obtain three to five new trade lines that report to the credit agencies. These should be new credit lines and not just ones they choose to keep in their bankruptcy.
Two to three of these new credit lines should be credit cards. If one cannot obtain a credit card immediately after filing a bankruptcy he/she should obtain a secured credit card, which is one where a deposit is required.
Once a person has a few credit cards he/she should actually use them each month. The most important thing to remember about using a credit card for the purposes of building credit is that you should never charge more than half the line of credit. For example if you have a credit card with a $200 line of credit, your charges for the entire month should be below $100.
When you get your statement in the mail, you should not pay it down to a zero balance. If you pay down to a zero balance, then it does not appear that you are using credit. Of course you should always make at least the minimum payment in a timely fashion each month. A good suggestion is to pay at least half the outstanding balance each month.