This is your chance for a fresh financial start. Now that you’ve been discharged from your bankruptcy, you shouldn’t have too many bills to pay. You probably have rent (or possibly mortgage payments), utility bills and maybe a few others. If you had student loans that weren’t discharged in the bankruptcy, keep on top of those. At this point, you should have fewer bills to pay, which means more money.
There’s No Excuse For Late Payments Now!
If you’ve just wiped out most or all of your debt with bankruptcy, there should be no excuse for late payments now… Especially if you’re earning as much or more than you were prior to filing for bankruptcy. That doesn’t mean you should go on a spending spree either! In fact, cutting back on unnecessary expenses is another great way to have extra money to pay your bills on time and build up an emergency fund. For many people, going bankrupt may have been a result of poor spending and saving habits. You need to prove to everyone that you’ve changed and you’re not like that anymore.
Whenever we try something new and move out of our comfort zones, it takes some getting used to. The last thing you want is to fall back into your old habits that lead you to file bankruptcy. You need to be extra vigilant now. Any negative credit comments or late payments will hurt you more than your non-bankrupt friends. Of course, late payments are bad for anyone’s credit profile, but particularly so when you’re recovering from a bankruptcy in Canada.
Consequences For Late Payments Are Harsher For Ex-Bankrupt People
Did you know that if any late payments are reported to your credit profile, you’ll have to wait 6 years for them to be gone? You can forget about getting a mortgage. Yes, even one late payment will scare off many lenders who are already a bit leery about loaning money to someone who was recently been discharged from a bankruptcy. In a few years, you might be able to get a car loan or a credit card, but if you do, it will be at a higher interest rate. That can happen if you were just one day late with one payment! Let’s say you get a secured credit card. Treat it with respect, because even if you’re one day late, it will get reported as “1 to 30 days late.” It’s just as bad as if you were a month late. Imagine how frustrating that would be if you were only a few minutes or hours late? Computers are impartial. If it’s late, it’s late
Your worst enemy now is late payments. Luckily, it’s something you have control over. Here are 5 strategies to help eliminate late payments:
1. Whenever possible, pay with online banking or by telephone banking instead of sending a cheque.
When you use cheques, what’s the worst thing that can happen? You might find yourself short of money or underestimate how much money is in your bank account. Then a cheque bounces. Not only is that embarrassing, it’s expensive because you’ll have to pay NSF (Non-Sufficient Funds) service charges to your bank and to the company you sent the cheque to. Plus, those NSF fees could create a domino effect and cause another cheque to bounce. And with some NSF fees costing around $35 each, it’s a waste of money. Let’s not forget that when it reports to the credit bureau, it’s going to hurt you where it matters. When you manually pay through online banking or telephone banking, at least the money comes out of your account right away. You know that there’s enough money to cover the payment. Plus, it’s quick and easy. Just make sure you get a confirmation number to be sure that the transaction was successfully completed.
2. Use money orders instead of cheques.
Sometimes you just can’t pay online or by telephone banking. If anything, it will happen when you need to pay your rent, if you’re a renter. A lot of large apartment complexes accept rent payments by debit or credit card, but not all landlords do. Of course you could pay by cash, but for you own safety, it’s best not to walk around with hundreds of dollars in cash in your pocket. Plus, you want a traceable form of payment.
Get a money order. Sure it may cost $7.50 but it’s a heck of a lot cheaper than paying NSF charges if you wrote a cheque that accidentally bounced. You may even have a service plan on your bank account that covers the cost of a money order or at least charges a lower fee. If not, money orders are slightly cheaper at Canada Post outlets. So, use money orders instead of cheques. At least you know the rent is paid and you automatically get a receipt at the time you buy the money order. By the way, pay your rent a few days early! At worst, on the first of the month. I made a conscious effort to pay anywhere from a couple of days to a couple of weeks early. Imagine what a good reference your landlord will give you!
3. Set up automatic bill payments.
A lot of companies have an automatic bill payment option that will take the money out of your bank account or charge it to a credit card on the due date. According to them, it’s guaranteed to be paid on time every month. And if there’s an error, it’s their fault, not yours. You won’t have to stress about about missing all of your payment due dates. And of course no more late payments to ruin your internal credit history with that company. And of course, no more wasted money for late charges.
Obviously, you need to be sure you have enough money available in your bank account or on your credit card. Only use this option when you have a float or safety buffer to cover at least one month’s worth of bills. I highly recommend you have even more of a safety buffer if you can afford it. Start saving up if you don’t! Let’s not slip back into nasty old habits.
4. If you pay your bills manually, pay them early!
Not just on time or on the due date, but early. It will give a good impression if your account is ever manually reviewed for a credit limit increase or to remove a cap on your spending limit, like with cell phones. Or you may need a reference letter from your hydro company if you move. With a reference letter confirming two years of on-time payments, you may not need to put up a hydro deposit when you move and switch hydro companies. Or, should you ever need to use your old utility company again, they won’t ask for a deposit if you had a good payment history with them.
5. Lower your monthly expenses.
I’m all for thinking positively, earning more money and increasing my means rather than living below my means. But at least in the beginning, keep your expenses down. You have to save up for those secured credit card deposits, a car and a house down payment. And let’s not forget to put aside some money for yourself to enjoy on something fun and even some money to give away to charity. Believe me, it will come back to you many times over in the future. But that’s a topic of discussion for another time.
For now, reduce your expenses. I actually cut out cable television. After about three weeks of withdrawal symptoms, I was fine. If that’s too hard core for you, drop down to the basic cable package. Plus, you can watch some shows online, commercial-free!
For a few days, make a list of everything you spend money on. Make sure you write down (or type in) everything, immediately to ensure you won’t forget anything. All of those little $2, $5 and $9 purchases add up. See where you’re spending money. Then look at how to eliminate or cut down those expenses. For example, instead of wasting time and money every morning at Tim Horton’s or Starbucks getting coffee and a bagel, prepare those at home. If you’re a coffee drinker, you can make gourmet coffee at home. Even buying a bag of the most expensive bagels at the supermarket will be cheaper that buying them individually at a fast food restaurant. You could easily be spending $15 a day on food and beverages. Make it a priority to set aside time to pack your own lunch at home. It will cost less and can be a lot healthier than fast food. Imagine how much further that $15 a day would go if you put it into a savings account? Even just $5 a day over the course of a year would pay 2 or 3 months rent for most people.
And let’s not forget about phones. Do you really need all those extra features and bundles? Do you really need a land line and a cell phone? As competition gets stiffer, the phone plans get better. You may be able to drop your land line and just use a cell phone as so many people are doing now. Or, if you must have a land line, consider an Internet phone like Vonage that gives you free long distance and all of the phone features for free.
Don’t just cut out one or two things. Saving $20 a month won’t seem like much. You need to go all the way. Saving $200 per month, or $2400 per year is much more significant. That’s got to be at least a few months worth of rent payments, eh?
Use as many of these tips as possible
You may not be able to use each and every tip presented here, but you should resonate well with at least a few of them. Remember, late payments, and their closely related cousin, overspending are probably what lead you to file for bankruptcy in the first place. Don’t let it happen again.