Making a financial recovery: A checklist Chapter 22 Making a financial recovery: A checklist

Overview This book has focused on the importance of making the best decisions during periods of financial distress. Many of the choices you must make to deal with urgent debt problems are temporary. Once you start resolving your financial problems, it is important to make choices for the future which will help you avoid getting into trouble again. The checklist is intended to be used as a guide for thinking about your financial life once your current debt problems are resolved.

I. Your budget: Issues to consider Can you start rebuilding your savings account? Did you postpone home maintenance or other necessities? Did you cut back in areas, like auto maintenance, that require special attention in order to prevent future problems? Have you stopped paying any low-priority debts which you now wish to address? Did you reduce or eliminate contributions to a retirement plan or borrow against that plan? Did you reduce insurance or medical coverage to save money temporarily?

II. Your credit card choices: Things to consider Have you reduced your reliance on credit card spending? Can you pay your valance in full each month? Do you have the cheapest available credit card? Do you understand all of its terms? Have you resolved any disputes about how much is due? Can you pay more than the minimum amount due? Are you unnecessarily using a secured credit card, when an unsecured card at the same rate is available? Are you resisting “easy credit” offers?

III. Protecting your home or apartment If you have caught up on your home mortgage or lease payments, have you reviewed your recent bills to make sure that your mortgage company or landlord thinks you are caught up as well? Have all court cases related to foreclosure or eviction been dropped? Is your current savings plan sufficient to protect you if urgent home repair needs arise in the future? If you find that you are continuing to struggle financially, have you thought about moving to a heaper residence?

III. Protecting your home or apartment – Cont’d 4) Have you implemented utility conservation measures which will make your home less expensive to maintain in the long term? 5) Have you shopped around for home insurance at the best possible rate? 6) Have you applied for any real estate tax abatement you may be entitled to? 7) Have you received a larger than expected escrow payment increase from your mortgage company?

IV. If you filed for bankruptcy: Some follow-up actions Did you receive a copy of your bankruptcy discharge and have you put it in a safe place? Do you know what debts you still have to pay because they were not covered by your bankruptcy discharge? Have you checked your credit report to make sure that the debts discharged in you bankruptcy are being listed with an outstanding balance of $0?

IV. If you filed for bankruptcy: Some follow-up actions – Cont’d 4) Are you still hearing from collection agencies or others about debts you thought were eliminated in bankruptcy? 5) If you successfully completed a chapter 13 bankruptcy case, are you still getting correspondence which indicates that your home or auto lender thinks you are behind? 6) Have you dealt with the problems which caused you to file bankruptcy in the first place?

V. Rebuilding credit 1) Have you checked your credit report to make sure it is accurate? 2) Have you resolved any disputes about your credit report or sent the reporting agencies an explanatory statement to include when it distributes your report? 3) Are you establishing better credit habits which will show new creditors that you are responsible? 4) Have you canceled unnecessary credit cards and lines of credit which may make new creditors concerned about your potential to become overextended? 5) Are you still getting credit card solicitations in the mail? Have you limited yourself to one unsecured credit card offers?

V. Rebuilding credit – Cont’d 6) Have you opted out of pre-screening credit card offers? To do this, call 888-5-OPTOUT (888-567-8688) or online at www.optoutprescreen.com. The three major credit bureaus use this same toll-free number to let you choose not to receive credit offers based on their lists. 7) Are you shopping around for credit on fair terms? Have you checked your credit report to make sure it is accurate? 8) When you apply for credit for big ticket items (e.g., a home or car), are you providing a good explanation for your financial problems along with evidence showing that they have been resolved? 9) Are you worrying about your credit report unnecessarily? Having resolved your financial problems, can you make a decision to reduce your reliance on credit for several years?

VI. Avoiding scams Paying for credit repair. Taking high-rate loans to tide you over. Don’t immediately accept a lender’s statement that you are “sub-prime” borrower who must pay very high interest rates to get credit. Beware of people or companies that market their services as “loan brokers.” Beware of companies that advertise with claims such as “no credit check” or “bad credit no problem.” Do your homework if you plan to go back to school (to improve your financial prospects).

Some final thoughts It is important to get over feeling ashamed about past problem. Even though not all past problems can be erased, most creditors understand that people fall on hard times and are wiling to help you. Before you try to rebuild your credit, make sure that your past financial problems are fully fixed. Don’t be too eager to take on substantial new debt. The most critical step in rebuilding is the evidence of your ongoing ability to repay loans or credit. It is best to rebuild your credit history by focusing on stabilizing your income and keeping your debt burden low.