10/8/2010 9:00 AM ET|
How to recover from financial ruin
You might not ever get back exactly the life you had before. Here are 5 steps for rebuilding -- with an eye on credit and retirement.
Two years ago, Jennifer Beach had a little piece of the American dream.
"We thought we were doing everything right," Jennifer said.
Then her oldest daughter, then 13, got sick and spent a month in the hospital, followed by three months in a wheelchair
The girl recovered, but the family's health insurance didn't cover all the bills, which now total more than $80,000. Jennifer lost her job after taking too much time off to care for her daughter. A few months later, as the recession deepened, her husband lost his job.
Attempts to modify their mortgage turned into "a cruel joke," Jennifer said, as their lender repeatedly lost the paperwork they sent. Jennifer and her husband drained their savings trying to keep afloat.
Today, Jennifer is divorced, unemployed, living in her parents' West Virginia home with her kids and wondering how she'll ever get back the life she once had -- or even manage to repair the credit devastated by all the unpaid bills.
"I don't have a car, I don't have credit cards, I don't have anything. It's like I fell off the map," she said. "How do you get back on your feet after something like that?"
Millions of Americans have seen their finances wrecked by unemployment, foreclosure, medical bills or other setbacks, and are likely wondering the same thing: How do you rebuild after financial disaster?
Here's the reality: You may never get back the life you lost. But it is possible to rebuild your finances and your credit over time.
This column won't help you if you're still in the middle of your crisis, although it may give you hope that there will be life afterward. If you're still struggling, please read "How not to pay your bills."
Jennifer's economic recovery is still a ways off. She's attending a local college to get a business degree, an education paid for by Pell Grants. She also qualifies for food stamps and Medicaid, two forms of aid she never thought she'd need but is grateful to have.
Once she finishes school and finds work, however, she can start to refurbish her financial life. So can you, once your crisis is past and you have a steady income again. Here's how.
1. Start with your overhead
To make sure you have enough money left over to rebuild, you'll want to keep an eagle eye on your "must have" expenses -- the shelter costs, food, utilities, insurance, child care and minimum loan payments that form your essential bills. After losing so much and living without for so long, it would be easy to rush into commitments that you can't really afford in your efforts to restore some normalcy to your life. Resist the temptation. Keep those "must haves" under 50% of your after-tax income. For more, read "The 50/30/20 budget fix."
VIDEO ON MSN MONEY
Many people today are being forced into declaring bankruptcy. Divorce, job loss, and the poor economy are mostly to blame. Unfortunately, many Americans have a lot of misconceptions about bankruptcy. They see bankruptcy people as “losers”, “irresponsible” or “broke”. None of these are true. The new face of bankruptcy is changing. White collar, college educated, former corporate executives, teachers, lawyers, accountants, and even celebrities are the ones filing for bankruptcy now. Many of these people found that bankruptcy was the only way out for them. Post-bankruptcy, their lives have improved and they have rebuilt their credit. Rebuilding credit takes time, but it absolutely can be done in as little as 2 years.Rebuilding your credit isn't as hard you might think. If you can get some credit cards after bankruptcy start charging small amounts and then paying them off every month on time. Soon your credit score will start to rise. Check out http://www.thebankruptcyshop.com for more helpful post-bankruptcy tips!
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