You’ve taken the plunge. After much thought, deliberation and contacting an expert you’ve finally taken steps toward financial freedom. You’ve put up a good fight. It may have taken you months, years, or maybe even decades to raise your white flag against one of modern day’s toughest opponents—debt—resulting in a credit score that could use a little TLC.
All this time, you may have been treating your growing consumer or small business debt like the crumbs that have fallen on your kitchen floor—they’re not that noticeable, not to anyone except you. Your schedule is so packed that the last thing you care about right now are a few crumbs. The few crumbs could be the unexpected purchase you had to charge to your credit card or the small business loan you took out to repair equipment that is essential to your business operations.
Pretty much everyone you know has debt anyways, we tell ourselves, and we’ve done the best we could have given our circumstances. For a little while, we feel relieved. We’ve successfully shuffled the crumbs into the corners and cracks. On the surface it looks like the problem is fixed, however without a plan in place to pay off the debt it’s easy to forget that we don’t just owe what we borrowed, but we get also get hit with interest– daily.
Fast forward to a future date and your workload is still relentless. You’ve continued to burn the candle at both ends and are so exhausted by the end of the day that you are hitting snooze (again) and running out the door before having time to clean up (again). Rinse and repeat. You haven’t increased your income or cut back on your spending since taking on more debt. The interest is piling up and soon, you are barely able to make the minimum payments. It makes for a big clean up once you’ve finally gotten past the point of turning a blind eye and pretending everything is in order when it’s clearly not.
Congratulations. Now that we’re all on the same page, let’s take a moment to congratulate you for doing what a lot of people won’t muster the courage to do:
Seek advice on how to get out of the mess you are currently in.
Many people believe that claiming personal bankruptcy or filing a consumer proposal ruins your credit forever.
The truth is it can be a necessary leap to reach to the land you’ve always dreamed of:
The land of good credit, where borrowing is easy and your budget is always in the green!
You CAN rebuild your credit – you just need to know what to expect.
In this blog, we’ll offer you 5 simple tips for rebuilding your credit – whether you’ve filed for personal bankruptcy, applied for a consumer proposal or want to improve your credit score.
1: Pay down your debts
If you haven’t already, you may want to consider a consumer proposal. A consumer proposal allows you to negotiate a settlement to pay all or a portion of your unsecured debts over a period up to five years.
In Life After Debt Pt. 1, we discuss the difference between personal bankruptcy and a consumer proposal and how these options may affect your purchasing and borrowing.
2: Apply for small amounts of credit – but not too frequently
Credit is tricky, we don’t try to deny it. While it is important to build credit, you don’t want to apply for credit too often, since every attempt is noted on your credit report, and ultimately helps determine your credit score. This is called “credit shopping.” A general rule of thumb is to wait six months before applying for additional credit.
To learn more about how your credit score is determined and how you can improve your score, check out our blog, “Understanding Your Credit Score.”
3: Get a secured credit card
A secured credit card will help you build credit again, albeit much more slowly than a conventional card. It requires a cash deposit guaranteeing your credit limit, and the limit is typically lower than an unsecured credit card.
Instead of treating a credit card as something you reserve for when you don’t have enough money in your bank account, a secured credit card forces you to have the money before making a purchase. With a secured credit card, you are retraining your brain to only purchase what you can afford and by building healthy habits when it comes to spending, you will begin to notice improvements in other areas of your life: reduced stress, anxiety, depression, and relationship satisfaction.
Remember, slow but steady wins the race and this is especially true with your finances. If you learn how to use credit wisely now, you will reap the rewards for the rest of your life.
4: Practice responsible finances
Make a plan. Set a budget and stick to it.
You can learn as much as you want about how to do something, but if you don’t sit down and figure out how you are going to apply the information to your own life by creating an action plan and holding yourself accountable to the plan, you will not achieve your desired results.
Remember the land of good credit? It’s a hard pill to swallow, but those who end up there don’t get there by spending more than they make.
Start by creating a budget. Our personal expenses should be separate from our small business expenses. In your personal budget, make sure to include the little things, like Netflix and Amazon subscriptions, as they can creep up over time.
If you can consistently spend less than you earn, make credit payments on time and put a little away each month, you will see your credit score start to improve. Apps like Credit Karma allow you to check your score regularly without impacting your score. Every week, you will find an updated score that is calculated by TransUnion. Being able to monitor your progress and watch your score skyrocket will be so rewarding!
5: Be patient
Changes to your credit score won’t happen overnight. Be patient and stick to your budget – you don’t have to borrow large amounts of money to rebuild your credit.
The Financial Consumer Agency of Canada states that TransUnion and Equifax will remove the notation of a consumer proposal from your credit report three years after the proposal has been completed, while a record of bankruptcy will stay on your credit report for seven years. This is important to consider when making a decision about the best way for you to get out of debt. You will want to think of your short and long-term goals when deciding which method is best for you.
The best thing you can do for your financial health and future is to take action today. Contact us today to take the first step towards rebuilding your credit.