Charge Of The Stormtrooper

Last week, I posted an article hoping to get people to break free from the stigma of filing for bankruptcy. It’s a decision I support under the right circumstances. Oftentimes when someone who is in the position of wondering what to do, there’s a number of reasons to consider whether or not you end up filing for bankruptcy.

In any case, let’s assume that you’ve made your decision. You are now looked upon unfavourably with the credit companies, but you want to buy a car or maybe a home… what can you do?

What’s the Problem?

Most people don’t have the money on hand to make those major purchases. So in order to get ahead, they take on debt in the form of capital that’s been paid upfront from a credit company. The only contingency is that the money be paid back with interest. Thus, we have credit. When we’re unable to consistently pay the creditors, our credit rating suffers, which means our ability to get more credit suffers.

What’s the Solution?

Let’s assume that your credit has hit rock bottom from a bankruptcy. You still want to buy that dream home of yours and sooner, rather than later. After a bankruptcy however, no lender will give you the money to buy that home. While we can’t have the instant gratification of having the house this instant, we can shorten the time with which that happens.

A secured credit card has become a very popular product in the last few years. With bankruptcies at an all time high, people were looking for a way to quickly rebuild their credit. Hopefully, it wasn’t so they could go on a spending spree again.

How Does It Work?

The way it works is similar to a normal credit card. The difference being that instead of the lender risking the money upfront, you do. This means that you’re putting your own money upfront to set the limit of the credit card. So in fact, it’s not credit at all. You use it in the same way, but since it’s your own money, the purpose isn’t to make purchases before you have the money; it’s purely to help rebuild your credit.

When Is This a Good Option?

While the benefits of being able to build up your credit are appealing, this isn’t an option I would recommend for everyone. The typical high fees that come along with these products could potentially put you right back where you started. The biggest consideration I would make is the reason you got into a bad credit position to begin with. To pay the fees involved with a secured credit card and to have undisciplined spending habits, you really wouldn’t be the type of person who should have a credit card in hand to begin with.

Often with bankruptcy comes a new appreciation for proper financial planning and more controlled spending. If the importance of major future purchases is high on your list of priorities, you may be out of luck in the short term. But with the new appreciation for saving, a secured credit card can be an excellent way of getting you on track towards your future goals.

Aaron Koo is a passionate networker and entrepreneur who gets people out of that “someday” mentality about understanding their finances.