Post of the Day
March 24, 1998

From our AOL
Credit Cards Board

Subject: Re: Should I file for bankruptcy?
Author: ChineseJew

"My wife and I have accumulated about $30, 000 in credit card debt. (it hurts even to type it). We make about $90,000 a year. We also have a mortgage, school loans, and two car payments. I have set up with CCCS, but I do not know if it will make a dent."

"Does anyone out there suggest I look into bankruptcy? (How frightening a thought)."

Hello PD27,

I filed for bankruptcy around 5 years ago. I knew how the rules were going to change on me and boy did it changed. Prior to bankruptcy, I had a AAA credit rating. I qualified for the best terms on almost all loans. I knew that right after bankruptcy, I have to switch to a "cash and carry" life. As it turned out, my intuitions were correct. There're loans I can get, but the post bankruptcy rates were short of being raped. I decided that those rates aren't worth it.

I worked hard and saved and invested my money. I only bought stuff that I really needed with cash most of the time. No more new cars through conventional financing; instead, I bought good used cars that're around 3 to 5 years old. I financed my cars through my credit union on a stock secured loan. Let tell you, 7.75% is a lot better than 20% plus. I buy company stock through my employer on ESOP (Employee Stock Option Plan) and the amount of stock I have determines how much I can spend on a car. Early on I can only afford a 5 to 7 thousand dollar car, now I can basically buy anything (within reason) I want. By buying a good used car also means I don't have to buy full coverage insurance, so I only buy liability. Since I don't have very expensive cars and saved a lot of money, if my car gets total, I can afford to just buy another one. I'm being my own insurance. By practicing this method of buying a good used car and only buying liability insurance and investing the savings over a lifetime will net you megabucks.

Sorry I diverged a little. Right after bankruptcy, I had a real hard time getting a credit card. There were offers for secured CC but they wanted in the area of $80 one time fee, $40 annual fee, and very high APR. Needless to say, I declined. Around 2 to 3 years post bankruptcy, I finally signed up for a CC deal I thought was fair. It was a secured CC through Capital One that charged a $30 annual fee and for every dollar I put up as colateral, I have a credit limit of $2.50. It took me 4 to 5 years after bankruptcy to land a no fee CC with good rates.

Filing for bankruptcy will hurt for a long long time. Here's the crazy thing - I worked hard and saved and invested like a mad dog after bankruptcy. At the 4 years post bankruptcy timeframe, I had almost no debt, steady job, had a net worth over $100,000 and guess what? I didn't qualify for a unsecured CC.

The good news. I've changed my life so that I don't need to get a loan except for the purchase of a house. Since I now have the money to buy basically anything I want with cash, I'm not at the mercy of the lenders - IT'S A GREAT FEELING. I live by a very basic rule - if I can't pay for it with cash then I don't need it.

You notice that I said I only buy when I can paid in cash, yet I said I financed my car through a stock secured loan. Although I can paid for it in cash, the loan is for reestablish my credit. Kinda crazy huh? Buying something on credit just to reestablish my credit.

To summarize, it's been 5 years since my bankruptcy. I have a steady job, basically no debt, tons of assets but guess what? I don't have a good credit rating (yet). IT TAKES TIME, A LOT OF TIME, TO GET YOUR CREDIT STANDING BACK IN GOOD ORDER. IT'S NOT WORTH IT.

Regards,
David Lee