The coronavirus pandemic has brought about unprecedented challenges, affecting not only our health but also our personal finances. According to NBC News, as of the last week of March, 6.6 million Americans have filed for unemployment benefits, and more people are expected to declare bankruptcy in the next two quarters.
While it's unfortunate that debt and bankruptcy are inevitable for many, it's crucial to remember that there are ways to rise above it.
It's important to plan for financial recovery as early as possible, with short-term and long-term solutions like the following:
Overhaul your budget
If you recently filed for bankruptcy, it's time to take control of your finances. While it may be tough to start, a budget overhaul is necessary for a fresh start. Begin by jotting down your monthly income, then list your expenses. If you're in a Chapter 13 bankruptcy case, you'll need to factor in debt repayment.
One popular budgeting method is the 50/20/30 rule. Allocate 50% of your income to necessities like groceries and utility bills, 20% to savings for emergencies, and 30% to non-essentials like entertainment and dining out. However, you might need to adjust your budget to prioritize debt repayment. While it may be tough to sacrifice some non-essential expenses, it's worth it to get back on track.
Apply for a personal loan
Did you know that you can still apply for a personal loan even if you have filed for Chapter 7 or Chapter 13 bankruptcy? However, the process can be challenging. The first step is to file a Motion to Incur Debt, which will be reviewed by the bankruptcy court. To be granted a personal loan, you need to demonstrate your ability to pay with sufficient income and have an agreement with a creditor. If approved, this loan can help you start a new chapter in your life after the pandemic.
Set up an emergency fund
Many people face financial hardship due to a lack of financial cushioning. To prevent this from happening, it's important to establish an emergency fund, which surprisingly, 28% of Americans don't have.
As a general guideline, an emergency fund should consist of approximately 6 months' worth of your salary. If you're following the 50/20/30 budgeting rule, allocate 20% towards your emergency fund. Consider opening a high-yield savings account and make it a habit to deposit money regularly. This way, you'll be prepared for unexpected situations, such as medical emergencies.
Start an investment portfolio
Once you've gained some momentum, it's time to think about building your investment portfolio. You don't have to start with big purchases like real estate; instead, you can begin by investing in the stock market. However, it's important to note that the stock market can be highly volatile, with stock prices fluctuating rapidly overnight. That's why investing in stocks is more of a long-term financial activity.
If you're interested in investing in stocks, it's helpful to use stock trading tools that can help you protect your money and limit your losses automatically. Plus500, for example, offers such tools. With these tools, you can make informed investment decisions and avoid impulsive choices that could lead to more debt.
It's also important to stay up-to-date with current events that could impact the market, such as the ongoing global health crisis. For example, stocks for companies in the healthcare, communications, entertainment, and consumer goods industries have risen as a result of the pandemic. Remember that with any type of investment, making timely decisions is crucial.
Rebuild your credit
Your credit history is an essential aspect of your financial life that can follow you wherever you go. If you have gone through bankruptcy, it is crucial to start improving your credit history as soon as possible. One way to do this is by paying your accounts, such as loans and mortgages, on time. Late repayments can stick to your credit report for up to seven years, and this is not something you want on record.
You may also consider getting a co-signer, such as a family member or partner, to help you improve your credit score. However, remember that this is a significant responsibility, and you must pay your accounts on time to keep your end of the bargain. Additionally, it would be best to keep your employment records clean to avoid any negative impact on your credit history. Try to avoid making job changes as they can be taken as a lack of discipline on your part. When rebuilding your credit and getting yourself out of bankruptcy, being responsible is crucial.