Credit cards can have a major impact on both the need to file bankruptcy and your ability to improve your credit score after bankruptcy. This can be both positive and negative, depending on the situation and where the person is in the process.
But it’s important to understand their impact so that you don’t buy into any myths about credit cards that may not necessarily help your situation. Let’s take a good look at ways that they can help you and ways that they may be a hindrance.
Credit cards make you spend more
First of all, credit cards can be a cause of bankruptcy cases because they influence consumers to spend more money than they would otherwise and perhaps beyond their means to pay the credit cards off. Sometimes overspending happens because you don’t feel like you are spending money. And this is true, to a degree, but you have to pay that debt back at the end of the month or over time. Putting it off for the future feels good in the moment, but can create a surprising amount of debt.
As a result, overuse of credit cards can be problematic. They also come with high fees and very high interest rates when you do miss payments, which can simply make your situation worse. You can get trapped in a cycle of fees and missed payments.
Credit cards build up your credit score
The positive side of credit cards is that they can actually be used to improve your credit score. One thing that people will often do after they file for bankruptcy is to get a secured credit card. You have to give the company a down payment in order to get this, so there is no risk to them. But it gives you a chance to build up your credit score by making charges and then paying them off on time. Eventually, this can open the door to traditional credit cards or other types of lending options, such as mortgage loans.
Considering your options
If you find yourself dealing with debt and you think that bankruptcy may be one way to address it, make sure you take the time to carefully consider all of the different options that you have.