Some people file for bankruptcy and swear off credit cards. They cut up the cards that they own and they say they will never get more in the future.
The reason for this is likely that they blame those credit cards for their overwhelming debt. Maybe they took out a larger loan than they could afford. The interest rate was very high, so now they’re trapped in a spiral where they owe more on the credit card every month, even though they’re still making the minimum payments.
At the same time, getting a secured credit card can be one of the best ways to rebuild your credit after bankruptcy. What is different about this card that makes it beneficial when a traditional credit card may be the very thing that caused the bankruptcy filing in the first place?
A down payment
The difference is that a secured credit card comes with a down payment. For instance, you pay the credit card company $1,000, which they put in escrow. You can then borrow up to $1,000 on the secured credit card, and you’re expected to pay it back at the end of the month. If you don’t, however, the company already has your thousand dollars.
In this way, you can make those monthly payments and increase your credit score slowly. You are proving to other borrowers that you can make responsible financial decisions. This is one of the key steps to take after bankruptcy if you still want to have an option to get lines of credit or traditional credit cards in the future.
The bankruptcy process can be helpful, but it’s also very complicated. Take the time to carefully consider all of your legal options.
