How to Invest in Your Future When You’re Broke

If you find yourself “barely” living paycheck to paycheck, the worry of not having any money saved can eat away at you. The concept of planning for future events like sending your kid(s) to college, helping them get married, and enjoying your own retirement can feel impossible when you can hardly afford your current lifestyle.

Although it may seem completely unimaginable, you can make a plan for your future; in fact, strategic financial planning may be the one thing that also helps you live better now as well.

The main reason most people don’t have a real savings plan in place is because they simply feel they don’t have enough money to do so. The change that needs to happen isn’t in making more money (although that is obviously not a bad thing) but in getting a new mindset.

The first step in getting a new money mindset is to change your inner dialogue from “I’m broke! I can barely even pay my bills!” to “Let’s see if I can find ways to improve how I spend money.”

While you may feel that you are barely able to meet the financial demands of your life, most people find that they’re spending too much in at least one area that can be cut back. Take a good, hard look at where all of your money goes for at least one complete month. Write down each and every cent that’s spent, organized into three categories:

  •  Necessary/survival: Housing (mortgage payment or rent), utility bills (electric, gas, water/sewer, trash removal), all forms of necessary insurance (homeowners/renters, car, health, life), food (for eat-at-home meals only), vehicle payment(s), vehicle maintenance, gas.
  • Debt: College/student loans, credit cards, personal loans, and any other forms of debt.
  • Luxury: These are things that, while dearly beloved by many of us, can be eradicated without causing you extreme hardship. Examples include: cable/satellite tv packages, streaming services (Netflix, Amazon, Hulu, HBO Now), high speed internet connection, Xbox Live membership, restaurant meals, magazine/newspaper subscriptions, cell phone(s) and their service plans, gym memberships, satellite radio, hair/nail services, frivolous (unnecessary) purchases like new electronics, expensive clothing/shoes, and other items that you simply don’t need.

Once you have a clear picture of exactly what you’re spending all of your money on, you will be able to create a plan to start saving money – it’s that simple!

Your mindset must remain steadfastly dedicated to saving money in order for this to work, however. See that list of luxury items? You are going to have to decide which of them you can either cut out entirely, or scale back. You will likely be surprised at how many companies will be happy to work with you to lower your monthly bill when you explain your situation. They’d rather keep your business at a lower profit than lose you altogether.

Instead of having your nails painted professionally, invest in the supplies needed to do your nails at home. Listen to the (free) radio in your car or pop in a CD rather than paying for satellite radio. Cut out your cable tv and keep your streaming services. Cancel your gym membership and get outside to exercise or start an indoor workout program – there are a multitude of free exercise videos on Youtube.

Even something as simple as not stopping before work to get a coffee and breakfast on-the-go can make a difference. If you spend $5 every day for a breakfast to-go, you can put that money directly into your savings account by eating breakfast at home. This habit can save you over $1,000 a year!

Another potential way to save money every month is to negotiate your interest rates with any lenders or credit card companies. You may also qualify for a loan modification (even for your mortgage loan) wherein the terms of your loan would be adjusted in order to make your monthly payments lower.

After you have found several good ways to save money each month – be sure to put the money saved into the right place! The best way to make sure this happens is to put a set amount into your savings account before you pay any bills or spend any money. That way you will train yourself to live on the money you have left after you’ve already invested in your future.

 

I Received a NJ Bankruptcy Discharge: Now What?

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Having all or many of your debts erased in a New Jersey chapter 7 bankruptcy is referred to as a bankruptcy discharge. Most people filing for chapter 7 feel a great relief when their discharge is granted.

While you are deeply immersed in the bankruptcy process, it can be easy to view your discharge as the finish line. However, once you’ve passed that finish line, you’ll have new goals to reach for, and achieving these goals will be the true measure of your future financial success.

After bankruptcy, you’ll be aiming for repairing your credit score, which will take a hit when your bankruptcy is reported. Lenders will want to see that your credit score is slowly rising post-bankruptcy. While this isn’t always easy to do, it’s definitely not impossible. You can:

Apply for a secured credit card – While significantly different from a traditional credit card, secured cards are backed-up by money you pay up front. While few banks will see you as an ideal borrower right after bankruptcy, some offer secured card programs to borrowers who need help rebuilding their credit. This is a temporary solution that you should only use until your score rises enough to make you eligible for a traditional credit card.

Apply for a secured loan – This type of loan typically involves a credit union or a local community bank. You can either “borrow” from funds that you supply to your own loan account, or borrow money wherein you must make certain necessary payments before any funds will be released to you. While not a typical loan, these baby steps help your credit score because your loan activity will appear on your credit report, helping other lenders to see that you’re moving in the right direction.

Ask a family member to co-sign a loan or credit card – It’s true that we typically do not advise our clients to co-sign loans for friends or family members. A co-signer is putting a lot of faith into you, because they are essentially letting you “borrow” their good credit. The only times we recommend considering co-signing is after bankruptcy and when you truly have zero other options.

Request to be an authorized user – An alternative to finding someone to co-sign a loan or credit card is to request to be listed as an authorized user on a family member’s credit card. This is probably the option that will have the least positive effect on your credit score, but it can help a little bit. However, ensure that the lender in question reports all payment activity to credit bureaus for all authorized users, not just the main account holder.

As you begin your journey post-bankruptcy, the most important thing you do will be to make every single payment you owe to anyone ON TIME. This includes the aforementioned secured loans as well as utility bills and any other monthly expenses. Bankruptcy discharge should have given you a huge break from significant debts, leaving you with enough money to pay for your living expenses with a little bit left over each month. This means there are no more excuses for late payments.

When we work with a bankruptcy client, we also offer credit repair assistance after your discharge. If you’ve received your NJ bankruptcy discharge and you’re still struggling, we’re here to help you figure it all out.

Image credit: John Eisenschenk

How to Tell if You’re Living Beyond Your Means

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The recent popularity of YOLO-based thinking (You Only Live Once) has encouraged many people to take life by the horns. Learning to stay in the present is beneficial for so many reasons. After all, everyone’s living on borrowed time, so really appreciating life’s little moments is a key factor in living a fulfilled life.

Some YOLO enthusiasts take the concept one step further, however – following a “Treat yourself!” mantra that goes beyond staying present and moves toward the idea that since you only live once, you might well “live it up.” This mentality can very easily lead to spending more money than you actually have on things that make you feel good – that new pair of shoes, the latest tech gadgets, getting your hair professional styled, a new car, etc.

Of course, you can find yourself living beyond your means even if you never knew what YOLO stood for until now. Even spending slightly more than you have over a period of time will eventually catch up with you. Regardless of how you’re spending too much, when you reach the point of no return, you’ll realize that you don’t want to spend the rest of your life digging yourself out of debt. THAT is definitely no way to live.

You might be wondering, “Do I spend too much?” It can be difficult to know for sure if you’re living beyond your means, especially if you haven’t hit any significant bumps in the road thus far. You’re house isn’t in foreclosure, your credit’s ok, you’re not late on your car payments, and there’s always enough food on the table. Even when it seems as though everything’s alright on the money front, there are still some signs that should send up a red flag to indicate that trouble is coming.

  • You have zero savings. Many Americans today don’t put as much effort into growing their savings as the generations before us did. The problem with this behavior is that no one really knows what their future holds. Your steady job may not last until retirement. You could become disabled or experience any number of truly stressful life events that will limit your income potential. Without any nest egg to fall back on, any hiccough in your life plan could have disastrous consequences.
  • You charge everyday items to a credit card. Things like gas and groceries should be factored into your monthly expenditures and paid for with real money. If you regularly pay for necessities by credit card, it’s time to take a harder look at your spending habits.
  • The balances on your credit cards are headed up. Ideally, you should be working to pay down anything you’ve charged to your credit card(s) recently, which should only be more expensive purchases. If, instead, you find that your credit card balances just keep rising, you’ll be heading for bankruptcy sooner rather than later.

Get back within your means by cutting back on unnecessary spending now. Take a good hard look at all of your monthly bills and expenses compared with your monthly income. If you can find several areas to reduce spending – great! On the other hand, if literally all of your monthly income is earmarked for life’s necessities – you may need a professional’s help to get back on track.

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When to Break Up With Your Financial Advisor

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An important indicator of your overall financial wellness is how well you balance spending with saving and investing. You should always keep the end game (retirement) in view while simultaneously being able to enjoy life while saving for your children’s college education, if applicable. In order to coordinate all of the pieces of your financial puzzle most effectively, many people choose to work with a financial advisor.

Unlike many other professional partnerships you may form, your relationship with your financial advisor or financial planner can become more like a friendship. Because many people stay with the same financial planner for years, you can easily feel connected on more than a professional level. This feeling increases if you are also in the same circle of friends or live in the same town.

No matter how much you enjoy the company of your financial planner, if your needs simply aren’t being met, you have some decisions to make. You’ll either have to explain to your advisor exactly how he’s letting you down and what he can change to retain your business, or you can start looking around for someone new.

Reasons to consider leaving your financial planner:

  • Distrust – Being able to trust your financial advisor with your money is extremely important. If you’re asking questions and not getting answers that feel authentic, that’s a red flag.
  • Poor communication – While it’s true that financial planners are often very busy, if your phone calls and emails go unanswered for lengthy time periods, you’re paying for a service that’s sub-par.
  • Unclear expectations – The best financial advisors will lay out a plan when you first team up with them. The plan should include input from you regarding your specific goals for your assets and what you’d like to see happen. If your advisor never created an investment policy statement for you – it could signal that he’s skimping on his other duties as well.
  • No contract – As with any professional who provides you with a service that you will be paying for, your financial planner should present you with a clear contract at the beginning of your relationship that outlines his duties to you and what he needs from you as well. Without a contract, you have no way of knowing what to expect.
  • Distance – If you’ve been working with a financial advisor from afar and have recently decided to take a more active role in your finances, letting go may be your only option.
  • No fiduciary standard of care – In other words, if your advisor (or his firm) doesn’t put your interests ahead of their own, you have a very good reason for finding a new firm.
  • Fees – If you’re currently unhappy with your advisor’s fee structure and this is set by his firm, you may not be able to get the arrangement you’re looking for without finding someone new.
  • Additional services – Many people today are interested in working with a financial advisor who goes above and beyond making sound investments for them. Tax planning and basic budgeting advice are two services cited by clients who were unhappy with their current financial planning firm.

At Veitengruber Law, we pride ourselves on our vast network of professionals and we attend networking meetings every month to stay immersed in the financial, legal and real estate markets. We are more than happy to assist you in finding the NJ financial advisor that meets your needs. Give us a quick call [(732) 852-7295], or fill out the contact request form on our website. We’re always here to help!

Image credit: Nicolas Raymond

Holiday Shopping When You’re Flat Broke

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Regardless of what holiday(s) you celebrate in December (Christmas, Kwanzaa, Hannukah), it’s traditional to exchange gifts with friends and family. It’s undoubtedly quite a magical time of year with gift giving adding to the excitement in the air. Finding yourself low on funds around the holidays can be stress-inducing, but you can enjoy the holiday season without spending a ton of money or ending up with a load of credit card debt.

First, it’s crucial to remember that the holiday spirit comes from within. Start the holiday season right by decorating your home while blasting Christmas music and drinking hot chocolate. If you don’t have a ton of decorations, you can create your own using recycled materials, which is another great way to get into the holiday spirit!

As many Americans have noted in recent years, Christmas has morphed into a new holiday called Giftmas, with a bright spotlight on way too many presents. To help your family take a step away from the materialistic focus, start a tradition (or several) that’ll be a great experience for your family without costing much.

Inexpensive or free holiday ideas include:

Volunteer to help those less fortunate than you. Not only is this an incredible bonding experience, it helps children (and adults) put everything into proper perspective. While your family may be struggling financially this year, there are plenty of others who are much, much worse off.

Do something, (anything) fun that doesn’t cost a lot of money. Have a Christmas picnic (if you live somewhere warm), have a movie night, play board games as a family, make holiday treats together, drive around town to enjoy all of the Christmas lights, go out for Chinese food, etc. You get the idea. Find a low-cost idea that makes your family happy, and enjoy the heck out of it.

Give homemade gifts. If your extended family members are also into the idea of saving money this holiday season, consider exchanging thoughtful presents that you each make by hand. You can use recyclable materials combined with some affordable supplies from the craft store. Not only does this save money, but these are often the gifts that people treasure above all others because they come from the heart.

Gift your services or expertise. If you possess a special skill (like knitting, woodworking, sewing or painting), give the gift of your services free of charge. Also consider offering your physical help to someone less able-bodied – (like help with grocery shopping, gardening, doing home repairs or walking their dog). Hiring someone to help out with these tasks can be expensive, so offering your services free of charge can mean a lot.

If you have some money in your budget and do plan to do some holiday shopping, save money by using DIY wrapping paper from materials you already have lying around. Stick to buying one gift per person when possible, but make it a meaningful gift, like a luxurious pen, personalized ear buds, a cozy blanket or a meaningful piece of jewelry.

Since it’s so easy to let holiday shopping get out control once you start, make a list of everyone you intend to buy a gift for and keep track of what you buy. In doing so, you won’t wake up one day in January to a massive holiday hangover without an easy cure.

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Wage Garnishment: FAQ

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What is wage garnishment?

If you owe money to a person or company that you have failed to repay or even begin to repay, the creditor (entity to whom you are indebted) can obtain a court order against you. This court document will order your current employer to take a specific amount of money out of each of your paychecks. This money will go directly to the creditor to whom you owe money.

How much of my paycheck can be garnished?

There are federal laws in place that limit the amount of money that can be garnished from anyone’s paycheck so that the debtor can still manage their monthly expenses. Generally, no more than 25% of your income (after deductions) can be garnished by any combination of creditors who may be seeking money from you.

Can I lose my job because of a wage garnishment?

If you have only one garnishment against your wages, your employer does not have the right to terminate your employment, nor can they punish you or treat you any differently because of a wage garnishment.

Multiple wage garnishments filed against you will give your employer some rights to take action. For example, suppose your employer discovers that you are neck-deep in unpaid debt and your job duties include dealing with company finances. Your severely disordered finances at home send up a red flag, and many times employers do have rights against you when the garnishments keep rolling in.

What can I do to eliminate a wage garnishment?

If you feel that a wage garnishment has been filed against you erroneously, you can protest the garnishment at a court hearing. You may also have rights if you cannot manage your bills with the wage garnishments set as they are.

Additionally, you can immediately eliminate any and all wage garnishments by simply paying off the debts in full. If you are starting a new job and don’t want your new employer to know that you owe money to a creditor, your best bet is to try to work with your debt negotiation lawyer to lower the amount you owe so that you can pay it all off in one fell swoop.

Can I eliminate all wage garnishments?

While you can “cancel out” a wage garnishment for say, credit card debt, defaulted loans or medical debt, some garnishments are harder (and sometimes impossible) to remove. For legal reasons, if you owe child support, your NJ county court will automatically set a wage garnishment action in place once your Final Judgement of Divorce has been entered. This guarantees that your children will always be cared for appropriately with no missed payments.

The same is true if you owe money to the federal or state government in the form of back taxes, or if you have delinquent student loans. In fact, wage garnishments for child support, taxes and student loans can even be initiated without a court order.

If you are facing a wage garnishment in New Jersey that you feel is inaccurate or that is preventing you from meeting your other basic financial obligations, work with your NJ debt relief attorney to either modify the wage garnishment order(s) or eliminate them if they are unlawful.

 

Image credit: Tax Credits

Snowball vs Avalanche: Digging Your Way out of Debt

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If you’ve landed in a pile of debt that seems virtually impossible to get out from under, you may just need a new approach. Usually, people who have substantial dollar amounts of debt (not including mortgages and car payments) possess multiple credit cards. Realistically, credit card debt is one of the most problematic types of debt for most Americans. On average, Americans who are in debt have at least $15,000 in credit card debt.

“How did this happen? I only charged a few things!”

Let’s face it: this line of thinking is so easy to get into, and it leads down a very troubling path. The reason credit card debt racks up so (seemingly) fast is because charging is thoughtless. We don’t have to think about it – just swipe that card and worry about it later. Additionally, interest adds up much faster than anyone realizes.

Getting real with yourself about just how much credit card debt you owe can be painful. In this case, it’s best to treat it like taking off a bandaid and just do it quickly. Lay out all of your credit card statements in front of you and make a list of each card along with its current balance and interest rate. Tally up the total amount of debt. It’s not going to be fun, but sometimes a reality check is in order when a big change is needed.

Once you have a clear vision of all of your credit card debt, you’ll need to devise a plan for getting rid of it. There are several options that have been shown to work well: the Snowball Method and the Avalanche Method.

Snowball Debt Reduction Method

This type of repayment plan is best for people who have A LOT of different credit cards, store cards and other relatively small debts like doctors’ bills or personal debts to pay each month. It can be very easy to get overwhelmed and confused by the vast number of minimum payments coming in.

To give yourself a confidence boost, you can use the Snowball Method, which involves paying off the smallest debt first in order to eliminate it. You will continue making minimum payments on all other debts while you put more money toward your smallest debt.

After your smallest balance has been wiped out, you can successfully check that off your list of debts you owe! Then move on to the next debt (in order from smallest to largest) and pay them off one at a time until you have paid off all of your creditors.

Avalanche Debt Reduction Method

If you have a substantial amount due on one or more of your credit cards, the Avalanche Method might work best for your debt reduction plan. This plan has debtors tackling their debt in order of interest rate.

Thus, you would still focus on paying off just one debt at a time, while continuing to pay your monthly minimums on all other debts. The difference is that now you will first focus on the card with the highest interest rate. The thinking behind this strategy is that you’ll save more money in the end by eliminating high interest rate balances first.

The Real Truth

Both methods are fine! The most important thing is to do what motivates you to keep going. If the Avalanche Method feels too overwhelming you may end up back where you started really fast.

Choosing a debt reduction plan and sticking with it is what matters. *Special Consideration* – If you are looking at $40,000 in credit card debt and you make $30,000/year – you may need more than just a repayment plan. Filing for bankruptcy can be the best solution in extreme cases like this. If your debt repayment plan has you paying off your debts for more than five years, contact your local bankruptcy attorney to see what your best options are.

 

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What is Credit Counseling? Is it Right for Me?

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All of the terms associated with getting out of debt can get so confusing that you may end up not even understanding which service(s) you could benefit from. That’s why we’re putting out a Back to Basics series, explaining many of the most common terms we use regularly. Look for a new Back to Basics post every week.

What is Credit Counseling?

Just as a marriage counselor sits down with a married couple in order to evaluate the state of their relationship, a credit counselor takes a good look at your finances. He will then work with you to design a plan of action that will see you paying off your debts faster, spending less money on non-essentials, and putting more money into savings.

Typically, you’ll be seeking credit counseling when you’ve found yourself deep in debt with no end in sight, but you can also seek this kind of help if you don’t have a lot of debt but want to save for retirement, pay for your child’s college education, refinance a loan, and more.

During your credit counseling sessions, you will essentially receive an education about how to improve your ‘Money IQ.’ This means that credit counseling is not just a temporary quick fix; you will learn how to maintain financial stability for good.

Who Provides Credit Counseling Services?

Firstly, you should know that there are many credit counseling services in business today who use unethical and often illegal methods to attempt to get you the results you want.

It is important to choose wisely when looking for help with your finances. If you have a lot of debt and need assistance negotiating with lenders, look for a certified and experienced NJ debt settlement law firm.

Many credit counseling services will claim to be able to help you settle your debts in addition to providing you with credit counseling assistance. The truth is that they usually don’t have the ability and necessary knowledge required to negotiate with lenders or to help you file for bankruptcy. All too often, debtors end up even deeper in debt after working with a so-called ‘credit counseling company!’

When you work with a certified debt negotiation attorney, you’ll be in good hands. Look for a New Jersey credit counseling law firm that also specializes in debt restructuring, bankruptcy, credit repair, asset protection and real estate matters (especially if your debt has pushed you into or toward foreclosure.)

How Much Does Credit Counseling Cost?

While you may be able to find a company that will quote you a remarkably low price for their services, remember the saying: “You get what you pay for.” Also – keep in mind that these companies are routinely engaging in fraudulent methods (scams) that have them promising results to customers that they simply cannot, and will never, deliver.

Rather than paying an uncertified company for credit counseling services that’ll get you nowhere fast, consider paying someone who really knows what they’re doing and get a huge return on your investment!

It can be a knee-jerk reaction to balk at the thought of hiring an attorney, but when you find the right certified New Jersey bankruptcy attorney, he will always have valuable experience in the areas of credit counseling and debt negotiation.

Will you have to pay an attorney to teach you how to get out of your unfortunate financial bind? You definitely will – but it will be more than worth it when your debts are either completely discharged (via bankruptcy), negotiated down to much lower amounts, or refinanced and restructured.

Do you think you could benefit from some high quality credit counseling? Would your life be less stressful if your finances weren’t constantly on your mind? If you want to learn more about our credit counseling program – call today and we’ll set up your free consultation. [(732) 852-7295]

We are happy to consult with you in our offices or over the phone, and we look forward to helping you.

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After Bankruptcy: Am I Doomed or Can I Rebuild My Credit?

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If all (or most) of your debts were discharged at the end of your bankruptcy case, you filed for chapter 7 bankruptcy. This type of bankruptcy is sometimes referred to as a liquidation bankruptcy because some of your assets will be sold so that you can repay at least some of your debts. Chapter 7 bankruptcies will appear on your credit report for the next ten years.

When you first file for bankruptcy, you’ll be required to take what is called the “Means Test.” This test will tell you whether it’s feasible for you to repay some of your debts or none of your debts. In the event that you are capable of repaying at least some of your debts, you’ll file for Chapter 13 bankruptcy. This will allow you to retain possession of all of your property, and a repayment schedule that you can achieve will be drafted. Chapter 13 bankruptcies stay on your credit report for seven years.

The fact that a bankruptcy is visible on a credit report for so long is a big deterrent to some debtors who could really benefit from a bankruptcy. The unknown is quite frightening – what will happen to you in the seven or ten years following your bankruptcy case?

We won’t sugar coat it and tell you that filing for bankruptcy will immediately do good things to your credit score. The truth is that any bankruptcy will temporarily drop your credit score significantly. This is something you have to accept before you enter the process. All potential lenders will see that you filed for bankruptcy, and it may be quite difficult to get a substantial loan.

With that being said, one of the things we do for our clients is to help them rebuild their credit score after a bankruptcy. You are not doomed! In fact, if you were really in over your head, filing for bankruptcy is one of the best decisions you could ever make. You’ve now freed up a lot more of your income and should have a much easier time paying your bills.

At the end of your bankruptcy case, your debts will either be wiped out (chapter 7) or renegotiated into a schedule that you’ll be able to make payments on without going into further debt (chapter 13).

The lowest your credit score will ever dip is immediately after your bankruptcy case is finalized. The best part about that is that you have nowhere to go but up!

Rebuilding your credit score after bankruptcy

Naturally, you can’t just wait seven to ten years for the bankruptcy to disappear from your credit report. You have a life to live in the meantime! Even with a bankruptcy on your credit report, raising your credit score can be accomplished. Use the following ideas to help boost your score:

  • Check your credit report. First and foremost, request copies of your credit report from all three credit reporting agencies. This will give you a ground zero starting point and will also allow you to check for any errors. Make sure that all of your (formerly outstanding) debts no longer appear on your report if they were discharged in a chapter 7 bankruptcy. Also, be sure that any renegotiated debts are reported accurately if you filed for chapter 13. Continue checking your credit report regularly from here on out.
  • Pay your bills on time. Before you even think about applying for a new credit card or loan, take several months (at minimum) to simply make sure your living expenses are paid in full and on time. This includes: mortgage/rent, utilities, cell phone, cable/satellite, internet connection, HOA fees, membership fees and any remaining debts (if they were reorganized in a chapter 13).
  • Set up a budget. Aside from making sure the bills mentioned above are promptly paid, you can make sure you don’t repeat any of your overspending habits by living on a rather strict budget. By allotting a specific amount of money for each of your monthly expenditures, you’ll give yourself a safeguard against spending more than you can afford.
  • Get new credit. In order for your credit score to rise faster, you’ll have to prove that you can handle owning a credit card and making the necessary payments each month. A bankruptcy on your record means that getting a new credit card won’t be easy, but you can apply for a secured card that is safeguarded by a deposit made by you. Every month that you successfully make your payment on time, this action will be reported to the credit bureaus, which will give your credit score a boost.

As time goes by and you manage to stay within your spending limits, you will see your credit score rise. Most banks and lenders will start to offer you lower interest rates again on an unsecured card once your score reaches 650 – some even at 600. If you still feel like you may lose spending control with a regular credit card, don’t apply for any. It’s better to watch your score rise slowly than to find yourself in over your head in debt once again.

For more information about rebuilding your credit after a bankruptcy, reach out to Veitengruber Law. We can also walk you through the process of filing for bankruptcy, and remember, we won’t quit until your credit score is repaired to your level of satisfaction.

 

Image credit: Frankie Leon

Can I Pay Off Debt and Build Savings at the Same Time?

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As we often talk about here on the Veitengruber Law blog, paying down your debt should be a primary concern for anyone interested in financial freedom. It’s impossible to have any kind of financial stability if your debts outnumber your savings. Many people, however, have become so focused on getting rid of debt fast that they completely ignore their depleted savings account.

The number one reason why you should keep adding to your savings account even as you pay down your debt is this: the money you put toward savings and investments will make more money.

Naturally, the logical argument is that long overdue debts will end up costing you more money due to accruing interest and late fees, so it may seem like it’s all a wash. That’s why it’s important to strike the right balance.

Telling you to find the right balance is easier said than done, and we realize this. That’s why we have a few pointers to help you get started.

  • Make saving a priority. Rather than pushing savings all the way down to the bottom of your priority list, set up auto-payments so that part of each paycheck goes directly into savings.

 

  • Get more bang for your buck. It’s true that most local brick and mortar banks offer pitifully low interest rates on savings accounts. Luckily, the great big world wide web is home to some much better options, like MySavingsDirect, Synchrony Bank and Ally Bank.

 

  • Cut corners where you can. Right now, it’s time to really think about where your money goes. In order to pay off debt and build savings simultaneously, your lifestyle may need a little tweaking. No more than half of your pay should go toward living expenses, and this includes your rent or mortgage payment. If the numbers simply don’t work out, seriously consider one or more of the following:

 

Find somewhere less expensive to live.

Stay with friends or family on a temporary basis.

Refrain from acquiring any new debt until your current debt is paid off.

File for bankruptcy.

 

  • See the forest for the trees.” In other words, don’t forget to keep your eye on the bigger picture. For you, that means after your debt is paid off, you won’t be starting at the bottom all over again in an attempt to build up your savings. By working in moderation to both pay your debts and increase your savings, you’ll be setting yourself up for a much better outcome than if you simply plowed through all of your debts with nothing to show for it.

 

  • Think positively. It can most definitely feel impossible to get out of the red and into the black, especially when one contemplates doing both at the same time. However, your mental attitude can be the tipping point to success or failure in any situation. Whether your trip toward financial stability involves filing for bankruptcy or simply avoiding any new credit card debt, keep your eye on the prize. It will be so, so worth all of the effort.

 

Image credit: SPB