Secured Credit Cards: The First Step To Getting Out Of Debt And Rebuilding Your Credit?

You have probably heard of the snowball method of debt repayment, where you put as much of your income as possible toward paying off your smallest debt, while making minimum payments on the others, and then when that one is paid off, you put as much money as you can toward the next smallest debt, and so on.  In many cases, the hardest part is finding those first few snowflakes; for most of us, any extra income to put toward paying down debts is as rare as Florida snow.  Declaring bankruptcy is a much more straightforward first step to getting out of debt, but then you have to rebuild your creditworthiness almost from zero.  Just like the snowball method of paying off debt, rebuilding your credit requires you to start small.  A secured credit card can be an affordable way to do that.  A Plantation bankruptcy lawyer can help you develop a comprehensive plan for rebuilding your credit after declaring bankruptcy.

Secured Credit Cards Enable You to Build Your Credit While Only Buying What You Can Afford

You may not think of credit cards as loans, but credit card companies see them that way.  When you make a purchase on a credit card, you are borrowing money from the credit card company, and the longer you take to pay it back, the more interest the company charges you on the loan.  When you open a secured credit card, you pay the credit card company an amount of money equal to the credit limit on the card; most secured credit cards have a credit limit of $200.  You can then make purchases with the card and pay as much as you can afford in each billing cycle, whether you pay the full balance, the minimum payment, or somewhere in between.  If you fall far enough behind on your payments, the credit card company will keep the $200 deposit you paid.  In other words, a secured credit card is like a car loan, in that, if you fall far enough behind on your car payments, the bank will repossess your car.

The good news is that, if you pay off your balance for enough consecutive months, the credit card company will refund your deposit and convert the card to an unsecured card, in other words, a regular credit card.  If you continue to pay off the balance on the card, you can gradually increase your credit limit.  It will take some time before you can make big purchases on credit, but you will at least be able to have a credit card for things like your monthly Netflix subscription, and you can feel assured that you are rebuilding your credit.

Bankruptcy Can Be the First Step Toward Rebuilding Your Credit

Bankruptcy does not mean that you can never buy things on credit again; a South Florida bankruptcy lawyer can help you get a fresh start on your finances.  Contact Nowack & Olson, PLLC in Plantation, Florida to discuss your case.

Resource:

nerdwallet.com/article/credit-cards/secured-credit-cards-vs-unsecured-difference