People file bankruptcy for many different reasons, but credit card debt is a common contributing factor. Credit cards with high balances can cause financial instability for American households.
If you think you need to file for bankruptcy in order to get out from under the ever-increasing balances on your credit cards, your first instinct after your discharge will probably be to avoid credit cards in the future. Choosing not to take out new lines of credit is surely the easiest way to avoid accruing too much outstanding debt on lines of credit.
However, for many people, simply eschewing consumer credit cards will not be the best way to bounce back after bankruptcy.
Credit cards are often the first step in rebuilding credit
When you get a bankruptcy discharge, you have a blank slate regarding unsecured debt. You may desperately want to avoid more debt in the future. However, the chances are good that you won’t be able to obtain more complicated forms of credit shortly after a bankruptcy discharge unless you start with credit cards first.
Lenders usually take their time before considering someone safe to loan to again after a bankruptcy. Often, they will choose to wait two or more years, even if the form of credit involves collateral, such as a vehicle purchase.
If in order to start rebuilding credit within a few months of your bankruptcy, it will likely be necessary to use credit cards, at least initially, to demonstrate an improved ability to responsibly use credit.
Make sure you protect yourself from falling into bad credit habits
If you have a history of letting your debt get away from you, you need to really think about your financial priorities when trying to rebuild your credit after bankruptcy.
Credit cards should not have a balance from month to month. Paying off the full amount you owe with every statement will not only pattern a responsible use but will also prevent you from accruing levels of debt that you have no feasible way to pay off again in the future.
Being responsible with credit cards after bankruptcy is important because it will be years before you can file for bankruptcy again. Still, the responsible use of credit cards is often one of the key components to successfully rebuild credit after your discharge.