Rebuilding Your Credit in Midlife

poor creditThe following is an article by Melissa, our guest contributor.

Unfortunately, poor credit can happen to anyone. We often think those with poor credit are slackers who run up their credit card bills with no plan as to how they will pay them off. Of course, there are some people like this, but more and more, financial ruin is happening to those just like you and me.

Thanks to the economy a few years ago, many people who had good credit faced financial ruin when they lost their jobs or couldn’t find new ones. Job loss aside, high medical bills can be another cause of poor credit.

When you face poor credit or even bankruptcy in midlife, you may feel there is no way to ever get ahead. However, with perseverance, you can rebuild your financial life.

How to Rebuild Your Credit

When you need to rebuild your credit, you won’t get the low interest rates you may have gotten before. Paying a higher interest rate can be discouraging, but take heart. Each month that you make your payments on time, you are one step closer to your former credit rating. Month by month, year by year, as you make payments on time, you will be gaining your financial footing.

Thankfully, there are many companies like Money Barn that are willing to take a chance on those with low credit. You can rebuild your credit through a car loan or a credit card.

While the conventional wisdom is that those with a bankruptcy will have trouble getting credit for seven years or more, many people report that is not the case. While no one wants to file bankruptcy, there is life after bankruptcy. You can establish good credit again with perseverance and discipline.

Other Things to Keep in Mind If You’re Considering Filing Bankruptcy

If you’re considering filing bankruptcy, you may feel that there will be no way to recover. However, keep in mind that if you file for bankruptcy, your retirement savings will remain intact and will not be available to your creditors. There are a few cases when your creditors may have access to part of your retirement savings, but that only can occur if you have more than $1.2 million saved. Furthermore, you will also be able to keep your house.

If you’re facing a mountain of bills, you may think the smartest move is to pull money out of your retirement account to avoid filing bankruptcy. However, that’s generally not a wise idea. If you’re under the age of 59 1/2, you will face a penalty and have to pay taxes on the withdrawal. That alone will eat up about 25% of your withdrawal. And, unfortunately, you may pull the money out and still have to file for bankruptcy. Filing bankruptcy instead and holding on to your retirement savings may be a better plan.

Facing financial troubles in midlife can be overwhelming. However, you can recover from this in time to have a good retirement if you’re smart about the decisions you make.

Photo credit: flickr by taberandrew

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