Welcome to Fix My Finances, Yahoo Finance’s new personal finance series. In each episode, we take a look at one viewer’s financial state of affairs and offer advice, insight and information on a variety of issues, including how to save more, spend less and pay off lingering debt.
In this episode, we speak with Mike, 30, who lives with his wife and child in Alabama. Mike works part-time while he’s finishing up college; his wife is a disabled veteran. They just completed Chapter 7 bankruptcy to get them out of debt after an investment property went sour. They are looking to rebuild their credit and put away some money for the future.
Post Chapter 7 bankruptcy
Mike and his wife say they were misled by a former friend to invest in a local property with trailer, but the couple did not see until it was too late that it was a money pit. They spent $15,000 fixing up the trailer by borrowing from family and maxing out credit cards. When they later had the property appraised, they were devastated to learn it was worth much less than they were led to believe.
Mike and his wife felt they had no choice but to sell the home and land to recoup whatever money they could to pay off their debts. Unfortunately, it wasn’t enough to get them out from under and they filed for Chapter 7 bankruptcy.
While Chapter 7 can wipe out most debts, it doesn’t unload you of your student loans or remove delinquencies from your credit report. In fact, filing for bankruptcy itself can stay on your credit report for 10 years.
However, you can repair your credit over time. To start the rebuilding process, it’s important to be mindful of all expenses and pay every monthly bill on time, every time.
Rebuilding a credit score
A good way for Mike to rebuild his credit is to get a secured credit card, which will require him to put cash into an account as collateral. Mike should try putting just one recurring purchase a month on the secure card, such as a cellphone bill, and pay it off right away. Since using a secure card should be done sparingly, Mike should get used to paying in cash, which will prevent him from overextending.
Watch the video to learn more about how Mike can fix his finances.
Want to be a part of this new series? We are looking for people in their 20s and 30s who need a money makeover. Apply here.