When I started out as a mother, I had the highest hopes for my families’ financial future. I promised myself that, as the wallet keeper of the house, I will be responsible with my spending all the time.
But then murphy came to test the waters. For some, it was an impulsive purchase, an attempt at business, a slip in the budget, or an emergency. For us it was the last one – in the form of Liam getting hospitalized for more than a month. And I failed the test. We did not have any emergency funds during this time and I relied on my trusty credit card to get us through all the hospital expenses not covered by my HMO. I blew off our budget big time and in turn busted my credit standing. I know it was bad because all my succeeding bank loan attempts the years after were declined. And it hurts to be a working pofessional with no banks who will trust me.
I’ve researched on this topic extensively while negotiating my balances on the back. I wanted to redeem myself from this fallback because I already learned from my mistakes and would like to be given another chance. Now I will go ahead and share with you the things I have done that worked for me in hopes that it will help you as well:
1. Show your prospect bank that you have a regular flow of income:
Because my payroll account is in the bank where I defaulted on, I opened a checking account on the bank I want to start over with and transferred my ‘very small’ savings there. I would also deposit all of my paycheck in this checking account and pay most of the bills online/through auto-debit, to show the bank my income flow, spending capacity,and that I regularly pay my bills on time
2. Get yourself a secured credit card:
How can you prove to the banks that you’re a changed person if they will not grant you any loans or credit card? Simple, apply for a secured credit card.
What is a secured credit card? In a nutshell, it’s a credit card requiring a cash collateral that becomes your credit line for the account. For example, if you have 10,000 in the bank that you are willing to park as collateral, you can get 80-90% of the same amount as your credit card limit.
The good thing about a secured credit card is that you hit two birds with one stone: you can use it to show the bank that you can manage a credit line properly, and at the same time your cash gets ‘locked’, meaning you are forced to not touch your savings. I know 10,000 for starters is a bit steep for some, but it’s a worthwhile investment to the purpose stated above. If you need further details about secured credit card, you can check out this article by imoney as a starting point!
3. Save some money regularly, no matter how small:
It shows the bank that you are not above the ceiling when it comes to expenses and that you are financially responsible (because saving is a responsible thing to do, lol). Plus points if you name your savings account with your purpose for that cash (i.e. emergency fund, dream house).
4. Pay off your existing defaulted debt and get a certificate stating so:
You might be wondering why this is last on the things I did. It’s because my debt is a bit large and I am still negotiating with the collection agency in the time I did the steps above. Ideally this should be done first, to clean the slate and to show the bank that you have recovered and can now pay your debts. Just don’t forget to get a certificate of payment/clearance. I’ve heard horror stories of payments cleared but were not honored by banks due to lack of proof and I don’t want it to happen to you,
I know that was a handful! This is not a one-size fits all solution and I cannot promise you that you will get exactly the same results given that I do not know the qualifiers, but it may be worthwhile giving it a try if you’re like me and:
-am still working with a decent income
-has only 1 credit card debt not exceeding 50k
-in a regular work position
-has enough patience to do all of the steps above.
As of this writing, my secured credit card with BPI has been coverted to a regular credit card, I got approved for 2 other credit cards and can avail of bank loans. My credit line is still small given my past mistakes, but I hope it will grow as time goes! I will also be availing of a housing loan soon, and will let you know how it goes.
Are you stuck in a financial rut like me? Try the steps above and let me know if it worked! Also, feel free to ask questions if you have any!
Hoping for your financial recovery soon.