During my first job interview after my bankruptcy, the interviewer asked me what I was “most proud of in my life.”
Without hesitating, I stated “declaring bankruptcy!”
His quizzical look invited me to explain. And I’ll share what I told him, in just a minute.
First though, here’s a Pop Quiz for you: Was going bankrupt the worst thing or the best thing that ever happened to you?
The answer depends on the choices you make afterward. Not just right after, but even today. Most of us who go through bankruptcy fall into one of three post-bankruptcy categories:
You jumped at new credit offers, hired a “credit fixer” to remove negative items, raised your credit score back up to 700 right away and wound up deep in debt again a few years later.
You stayed away from new credit completely, have never taken steps to improve your credit and still can’t find anyone to lend you money at a decent interest rate.
You transformed the habits and beliefs you had about money, broke the debt cycle for good, and are making steady progress toward building a positive net worth.
Good news: no matter which path you took, you can still use your bankruptcy as a positive tool. Here are a few strategies you can use, whatever your current finances look like:
Stop the bleeding. Stop adding any new debt to your life. You can’t get debt free by borrowing more money. Stay away from new credit offers. Until you’ve made some positive changes in your financial habits, applying for new credit too soon after bankruptcy is like an alcoholic walking into a bar only a few months after getting sober.
Give yourself a raise. This one is simpler than you think. Cut out expenses, even those you deem “essential.” Sell stuff, even the things you love. Lose the cable, subscriptions, dining out, etc. Once you’ve built up a positive net worth, you can always have them again. (That inner voice may be telling you you’ll “never” have what you want and we’ll work on that voice later!) Thomas Jefferson sold his entire library of books repeatedly to pay his debts and still died with more than 1600 titles on his shelves.
Take the scenic route to a higher credit score. Forget about shortcuts and quick ways to increase your credit score. Removing negative credit items from your credit reports and opening new accounts will leave you filled with guilt, remorse, and a sense of having outwitted the creditors. Creditors are HOPING and PRAYING you will jump at new credit offers and sign up with credit “fixers” so you can start paying them interest again. These moves will lead you back into debt and on the short road to another bankruptcy. Instead, create a financial road map for what you want to create in your life, and then draw a route to get there, with your self-esteem AND your credit score intact.
Communicate with creditors. Once you have a road map, communicate with creditors about what you can do. I’m talking future creditors and current creditors. Get them to buy in to your plan for financial security. It benefits you AND them. Have someone else make calls for you until you’re comfortable asking for and telling creditors what will work for you without getting defensive or aggressive with them.
Repay creditors slow and steady. If you’ve got new debt after bankruptcy, do what I recommend in my Break the Debt Cycle – For Good! CD and set up a DebtBuster Strategy™ plan. Pay off everybody starting with $5/month if necessary. Think of it as a diet plan – you cut out one small thing in your diet each month. Your weight loss is slower, but lasts longer.
Build up your net worth at the same time. Put the same amount in savings each and every month that you are putting toward your debt payoff. Then if any new expenses pop up, that’s what you use so you don’t add to your debt. Think of it as building financial muscle with a five minute daily workout.
Change your tune. Too often, we look at our financial problems and blame “someone or something “out there.” The ex, the creditors, the boss, the government, the economy. Or we beat ourselves up for our inability to manage money, adopt an “I’ve always been like this” approach, and so on. Take time to discover WHY you feel unworthy of having financial peace and security and a positive net worth. Uncover what you think it means about you to be bankrupt, to be in debt, to not able to give your family the things you think they deserve. When you take “responsibility” all it means is that you’re deciding that you’re “able to respond” to what you’ve created in your world. You can’t change “something outside of yourself.” But you CAN change YOU.
So.. what did I tell the employer about how my bankruptcy changed me? Let’s return to his office and see:
“I grew up in the Midwest. There, your word was your bond. By age 21 I had a mountain of debt. And it took a world of courage for me to realize that my best option was to go bankrupt. Since that time, I’ve educated myself. While most folks work to figure out the best ways to get new credit or improve their credit score, I decided to learn something else. I decided to learn how to make better decisions about my money. I learned how to build net worth and how to realize that how much or how little cash or debts I had didn’t mean anything about me.”
The employer nodded, extended his hand and welcomed me as a finance editor for the largest financial newsletter publisher in the world.
Paula Langguth Ryan is the author of Bounce Back from Bankruptcy and the forthcoming Break the Debt Cycle – For Good. Download her free e-book and workbook, Heal Your Relationship With Money at www.paulalangguthryan.com/freestuff to get to the root of and heal your financial beliefs. She can be reached at 970-590-3732 or via email at email@example.com. Follow her on Facebook or Twitter.