The coronavirus has created uncertain times for all of us. It’s not just our health that’s at stake, but our personal wealth, too. In fact, NBC News reports that 6.6 million Americans have filed for unemployment benefits as of last week of March, and more people are expected to declare bankruptcy in the next two quarters.
The sad reality is that debt and bankruptcy are inevitable for many people, but it’s crucial to remember that there are ways to rise above it. It’s important to plan how to bounce back from financial hardship as early as now, with short-term and long-term recovery solutions like these:
Overhaul your budget
Things might be a bit lean in your household for a while. A complete overhaul of your budget is then necessary for a fresh start. Start by writing down how much you’re making before proceeding to outline your monthly expenses. If you filed for a Chapter 13 bankruptcy case, you’ll also need to factor in debt repayment into your budget.
You can use popular budgeting methods as your guide, such as the 50/20/30 rule. Allocate 50% of your income to necessities (groceries, utility bills, etc.); 20% to savings (emergency fund); and 30% to wants (entertainment, dining, etc.). You might have to sacrifice your budget for non-essentials to more urgent expenses, such as debt repayment, but it’s a small sacrifice to make until you get back on your feet.
Apply for a personal loan
You can apply for a personal loan even with a Chapter 7 or Chapter 13 bankruptcy case, but do note that the process is much trickier. You will need to file a Motion to Incur Debt first, which will undergo review by the bankruptcy court. If you can prove your ability to pay with sufficient income, as well the agreement with a creditor, then you can be granted the personal loan. It should help you to get started on the new chapter of your life after the pandemic.
Set up an emergency fund
One of the main reasons many people go bankrupt in the first place is their lack of financial cushioning. To avoid this scenario in the future, you need to set up an emergency fund — something that 28% of Americans don’t have.
As a general rule of thumb, an emergency fund should contain around 6 months’ worth of your salary. If you’re following the 50/20/30 budgeting rule, the 20% can go towards you emergency fund. Open up a high-yield savings account and make it a point to deposit money regularly. This should protect you from any more unanticipated situations in the future, such as medical emergencies.
Start an investment portfolio
When you get the momentum going, it’s time to consider building your investment portfolio. You don’t have to make big purchases like real estate, however, and you can start by investing in the stock market. You should be aware that it can be an extremely volatile market, with stock prices rising and falling at sharp rates overnight. This is why investing in stocks is really more of a long-term financial activity. Plus500 points out that stock trading tools can help you safeguard your money as you earn by letting you limit your losses automatically. You can make smart investment moves and prevent erratic decisions that can lead to more debt.
That said, you need to be aware of current events that can affect the market, such as today’s global health crisis. For instance, stocks for companies in the healthcare, communications, entertainment, and consumer goods industries have risen as a result of the pandemic. Just remember that with stock investing — or any other kind of investment — you need to make timely decisions.
Rebuild your credit
Credit follows you wherever you go, which is why you need to start improving your credit history right away. With your bankruptcy accurately displayed in your credit report, keep working on paying your accounts — loans, mortgage, etc. — on time. The Balance warns that late repayments stick to your credit report for seven years, which is not something you want on record.
You can also consider a co-signer like your partner or family member. This is a big responsibility, so make sure to keep your end of the bargain by paying your accounts on time. And lastly, keep your employment records clean. As much as possible, avoid making job changes as they appear on your credit history and can be taken as a lack of discipline on your part. When rebuilding your credit and pulling yourself out of bankruptcy, responsibility is a trait that you always want to practice.