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


Go To Credit Cards

The Post of the Day may be edited for readability or length, but never for content. The opinions expressed in the Posts are those of their authors, and not necessarily The Motley Fool. We make no claim or warranty as to the veracity or accuracy of any post, and present this feature only as an example of what may be found on our message boards. Don't take the Post of the Day, or anything else here, as gospel and, as our seventh grade English teacher, Mrs. Peacock, used to say, do your own homework, and avoid run-on sentences.