When you declare bankruptcy you work on a repayment program with the court which includes determining which of your assets you get to keep. In many cases, you will get to keep your home and at least one of your vehicles. Bankruptcy is more about re-structuring your debt so that you pay as much of your old debt off as possible and then put yourself back on the path to financial responsibility.

Some debt cannot be discharged in a bankruptcy such as back child support. But you will be left with debt to take care of when the bankruptcy goes through and you will have to pick up the pieces and get your financial life back together.

Credit Counselor

One of the difficult things that people have to do after a bankruptcy has been filed is to admit that some of it was their fault. Large medical bills, an unexpected divorce or the loss of a job are certainly some uncontrollable conditions that can being about bankruptcy. But when financial help is needed due to irresponsible spending, then there is no one to blame but the consumer.

When you file for bankruptcy, the government requires you to take a credit counseling course or see a credit counselor. This is something you should continue after the bankruptcy has been filed.

If you do not learn good credit habits, then you will find yourself staring at bankruptcy again in a few years. Seek out the help of a financial professional to get your spending under control.

Budget

Once the bankruptcy is filed and executed, your entire life will change. You will not have access to the credit that you used to have, you will have settlements to pay off and you will still need to pay the bills that keep your household going. That is why you need to establish a personal budget to help you spend and save money.

One of the big misconceptions about the period after filing for bankruptcy is that all spending must stop. That is not the case and it is also impossible. To survive in our society, you must spend money. The key is to develop a budget that helps you spend wisely and also helps you find money to save on a regular basis.

Rebuilding Your Credit

Should you be concerned about your credit right after the bankruptcy is filed? Yes, you should. At some point in the future, you will need credit to buy a vehicle, rent an apartment or get car insurance. A bankruptcy does not mean that your credit is frozen forever. It just means that you are on a court-appointed payment plan for the next 10 years.

Rebuilding your credit after a bankruptcy is a slow and deliberate process. The first thing you should learn is to seek out your own credit opportunities and not fall prey to con artists and criminals. In other words, do not sign anything until you know exactly what you are getting into.

The first step is to get a secured credit card that requires you to have money in a bank account to back up your purchases. Do not overdraw the account, but use it as often as you can. Over time and with good spending habits, the credit company will offer you a small line of credit that you can rebuild into a stronger credit rating.

Cash

One of the good habits you will want to get into after a bankruptcy is to start using cash more often. Over time, you will learn good spending habits that will help you to avoid another credit disaster. But while you are readjusting your buying patterns, you should learn to buy only what you can afford to buy with cash.

Rather than renting a computer, you should put the money you would spend on rent into a savings account and buy the computer outright after a few months. Learn to save or do without to break the dependency on credit.

Bankruptcy is not the end of the world. But it does require you to change your spending habits. If you make the right moves after a bankruptcy, you can start building good credit sooner than you think.

Those of us old enough to remember the old Popeye cartoons undoubtedly remember the famous line from the character Wimpy, “I’ll gladly pay you Tuesday for a hamburger today.” Wimpy was introduced to the world in 1933, during the height of the Great Depression, which may explain his penchant for trying to take out personal loans to finance his cheeseburger habit.

Of course, Wimpy’s mooching was from his friends rather than a bank, and dealt with relatively low amounts. However, it does demonstrate a really bad reason for taking out a personal loan. Taking out a loan for an item that will be gone long before the loan is paid off is not generally a very good idea, nor is it often one that banks will look favorably upon, unless you have stellar credit (in which case they’ll gladly lend to you for any crazy reason). Here are some other examples of really bad reasons to take out personal loans:

1. For paying off another loan. Unless you are using the personal loan for debt consolidation purposes, taking out one loan to pay off another is a great way to ensure that you give the bank way too much of your money in interest payments. Not a good idea most of the time.

1. Paying off guaranteed student loans. Banks are willing to work with you more on student loans than just about any other sort of loan, and it’s not generally a good idea to move out of a loan that you can repay a little at a time into one that you have to pay back faster. If you want to do that, simply double or even triple your payments on the student loans.

1. Spending cash. Instead of taking out a personal loan, try hitting up the boss for some overtime or taking on a second job part time. Spending cash, for most people, is gone almost as soon as they get it, but you could be a year or more paying off personal loans.

Save personal loans for times when you really need to borrow money, or for things that you wouldn’t be likely to save enough money for. Using them to fill short term needs is almost always a bad idea. If you can avoid taking out the loan, then do so.

There are a lot of things to consider when applying for personal loans. You want to make sure you are dealing with a reputable company, of course, and you want to make sure that you are getting the best interest rates that you can, given your credit score. You want to make sure that you borrow enough to accomplish or obtain whatever it is you’re taking the loan for in the first place. You also want to make sure that you fully understand the terms of any loan before you sign on the dotted line.

But more than anything else, there is one thing that everyone who applies for personal loans should consider:

Can I pay this thing back?

Credit makes a wonderful servant. It allows us to do and get some things we would never be able to pay for all at once. And, used correctly, there’s nothing wrong with taking out a little credit. However, that wonderful servant is a complete bitch if you let her master you. Getting behind on payments, even once or twice, can really affect a lot of things in your life.

Most of us are fully aware that it will affect our credit score if we make late payments, or, worse, miss a payment or two. And most of us know that a lower credit score means we may not be able to borrow in the future. Or, if we can borrow, it will cost us more in interest payments. But, were you aware that your credit score can also affect you in other ways?

• In many cases, a low credit score can hinder you from getting a job. This is especially true when it comes to working within the financial sector, but more and more employers are checking credit for any employees who handle money, or who are placed in any position of trust.

• Landlords typically check your credit before deciding if they will rent an apartment to you. You may be denied an apartment, or asked to offer a larger security deposit if your credit score is low.

• Certain service contract items, such as cell phones and satellite or cable television might not be willing to do business with you if you have a low credit score.

Obviously, we all need to keep our credit scores as high as we can. And that’s why, if you’re considering taking out a loan, you really need to ask yourself whether you can afford the payments. If your budget is so tight that you’ll have to skip a payment if something comes up, you’d be better off to skip the loan in the first place.

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The majority of Americans are up to their eyeballs in debt. Over forty percent of American households actually manage to spend more per year than they bring in. It doesn’t take a rocket scientist, or even an economist, to figure out that’s a recipe for disaster. It’s no wonder we have so much economic stress when the average household in our country carries more than $8,000 in credit card debt alone. That says nothing, of course, about mortgages, car loans, personal loans, or any other kind of debt.

One of the best ideas ever introduced on the American financial landscape, if it’s used properly, is the debt consolidation loan. There are many different ways you can work these loans. Some people roll them into a second mortgage, others essentially take large personal loans to wrap all of their other debts into one package.

Most importantly for most Americans, a consolidation loan can be used to roll all of that credit card debt into a loan with considerably lower interest. Credit cards are convenient, but if you don’t pay off your balance every month, you can get slapped with some incredibly high interest rates. Consolidation loans help to lower what you’re paying in interest.

If you think you might want to take out a debt consolidation loan, gather all of your bills and figure out exactly what your outstanding balance is. Then figure out what your monthly payments are, and how long you will need to make those payments. This should give you something to compare with the terms and figures of your consolidation loan.

Talk to several lenders. Don’t apply for the actual loans until you have compared loan rates. Making out several loan applications can actually negatively affect your credit score. Find out what typical loan rates are for people with your credit score. If you don’t know your credit score, you can find out what it is online through Equifax, Experian, or one of the other credit reporting bureaus.

After you have compared the rates of several lending institutions, apply for a consolidation loan with the one which offers you the best rates and terms. Usually this is a simple matter of comparing the numbers, though there may be other factors as well. Ultimately, you should take your loan out with whomever you are most comfortable dealing with.

If you do get a consolidation loan, do yourself a favor: Don’t incur more debts, at least until after you have paid it off. Too many people make the mistake of getting a consolidation loan, then taking the excess money they have and immediately using it to justify borrowing more money. Soon, they are up to their eyeballs in payments again. Wait to borrow more until you pay off what you already owe.

Image by Andres Rueda

Here are some things to think about when you’re considering whether or not to take the personal loan plunge:

• Understand the terms of the loan. Otherwise, you could wind up paying more in interest in the long run. For example, you might have a variable rate loan. That means that the rate on your personal loan could go up at intervals specified in your loan contract. If the debt you’re paying off is at a fixed rate that won’t change, your personal loan rate could conceivable catch up to and even pass your other debt. The same holds true if the personal loan has a low introductory rate that will automatically go up significantly after a period of time.
• Be sure you can afford the personal loan. In theory, by paying off other debt you’ll reduce your overall monthly obligations. Still, if you don’t have the budget to make the personal loan payment, you aren’t going to be any further ahead. If you can’t make the payments, you might consider turning to other solutions, such as consumer credit counseling, before you turn to a personal loan to solve the problem.
• Don’t build your other debt back off. What happens, in some cases, is that a person will take out a personal loan to pay off their credit cards. Then, because their credit cards are paid off, they wind up going back out and racking up a bunch of additional credit card debt. Then, you’re further behind than when you started. Some lenders will even require that, if you’re taking out a personal loan for the purposes of consolidating debt, that you close the accounts that are being paid off as one of the conditions for approval of the personal loan. If you’re likely to go out and build your debt again, you’re better off not taking the loan in the first place.

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An average college graduate today has a debt of over $23,000. Much of this debt takes the form of student loans, but a significant portion can be from personal loans or other types of credit.

The good news is that graduates have some choices about how to best manage their debt. Figuring out what the best options are can be challenging, however. There are all sorts of loan options on student loans, and a college grad has to be smart in order to avoid getting into trouble with their debt.

Separating Debt

The first step in address student loan debt is just figuring out what you have. You’ll need to sort your debt into categories. There will be Perkins loans, subsidized and unsubsidized Stafford loans, personal loans and credit cards.

Perkins loans, for example, are low interest loans and you’ll want to pay those off last. Credit card debt tends to be at a much higher interest rate.

In between those are the Stafford loans. The government pays the interest on subsidized Stafford loans, but the interest is just added in with unsubsidized Stafford loans. This, then, means you need to pay back these loans as soon as possible.

Personal loans fall somewhere in the middle, too. The key is knowing what your interest rate is and how it compares with your credit card debt and your unsubsidized Stafford loans. Ideally, you’ll pay off the credit with the highest rate soonest.

Repayment

Once you have a plan in place, you can begin repayment. With your student loans, you may have the option to repay your debt over 10 years, over 30 years, or to defer your loan payments altogether. If you’re under economic hardship, for example, the student loans may be held off for a certain amount of time.

The key is, with all of your debt, to make sure you’re paying on time and communicating with your creditor if that’s not possible.