After you file bankruptcy and get your discharge, you have a fresh start, but it’s up to you to make the most of it. One of the first things to do is to get busy rebuilding your credit and improving your credit score. To avoid future financial problems and keep yourself on track, it’s important that you live within your means. This means your spending and debt decisions should be conservative and wise. Here are some signs you might be living beyond your means and how to get back on track.
You Use Credit to Pay for Services You Could Do for Yourself
You may not like to mow your lawn, clean your toilets, or bathe your dog, but paying someone else to do these doesn’t always make sense. If you carry credit card balances month to month, that means you’ve got debt. If you’re charging to pay for these services or if you must charge other bills or necessities, that means you can’t afford to hire someone to do things you can easily do for yourself.
You Pay for Vacation on Credit
Sometimes it’s advantageous to use a credit card to pay for travel. Using a credit card offers you more flexibility when you need to cancel plans or if you’ve been overcharged. However, if you can’t afford to pay off the bill in full when it comes due, then you’re essentially taking out a high-interest loan to pay for your trip. If you can’t pay for the vacation, you’re probably traveling beyond your means.
You Make Decisions Based on Available Credit, Not Cash
If you think you can afford something because you have room on your credit card, but you couldn’t pay cash for the item, you can’t afford it. Creditors are fairly generous with credit card limits, particularly when you have a good credit score. But if you maxed out all your credit lines, you’d likely be in debt beyond what you can afford to repay. If you can’t pay out of pocket, rethink that purchase.
You've Maxed Out a Card or Had a Bad Check Fee
One warning sign of living beyond your means is trouble with creditors. Even if you are making your payments, if you’ve maxed out a card (or more than one), that means you’re using credit too heavily. Similarly, if you’ve bounced a check, have exceeded your balance, or had to use overdraft lines of credit, you’re probably living beyond what you can afford.
You Make Purchases Based on Credit Offered
Just because a creditor offers you a $300k mortgage or a $35k car loan doesn’t mean you can afford it. Don’t trust that the creditor thinks it’s okay, think about your monthly budget, whether or not you will be able to save money, set aside part of your wages in a 401(k), and live comfortably if you take the maximum amount of financing offered. Large purchases must be made strategically.
You Can't Afford Any Financial Hiccups
If your finances have you living paycheck to paycheck, you’re living beyond your means. When missing a day or a week of work will cause you to miss paying bills, you’re likely spending more than you should. You should have an emergency savings account, a retirement account, and breathing room in your budget. If you spend every dime you make, it’s time to rethink your standard of living and choices.
To make the most of a fresh financial start after bankruptcy, learning to budget and rebuilding your credit are top priorities. Living below your means allows you the flexibility to save and plan for the future. To find out more about how to clean up your credit after bankruptcy, check out Credit Score Keys today.