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Life After Foreclosure
If you are in the midst of foreclosure, you are probably already aware of the turmoil it causes. Not only have you lost your home, but your finances are probably also in disarray. Figuring out where to focus your energy can be exhausting, but recovering from foreclosure is like anything else. You need a plan. Actually, you need two plans, one for the immediate present, and one for long term.
Plan 1: Survival Mode
Find a place to live. Even if you have to live with family, knowing that you have a roof over your head for the next few months will allow you to focus on your recovery, rather than existing in a constant state of flux.
Determine the amount of your outstanding debts. Despite the fact that your bank now has your home, you may still owe them money if the sale did not cover the mortgage and foreclosure costs. If you are behind on your other bills, you may have accrued additional late fees or penalties.
If you are in danger of losing your car, speak to the bank as soon as possible. The last thing you need is to be without a home and a car. At the very least, focus on how to keep some form of reliable transportation. This may mean that you trade in the car or sell it to a third party so that you can get out from under expensive payments.
Create a "martial law" budget. In other words, focus on your bare necessities, and how you can meet those needs. Obviously, prioritizing which bills you can afford to pay and which ones you cannot is top priority. If you are one of the fortunate people who have not fallen behind on your other bills, then your focus should be on keeping up with your obligations, so that your credit doesn't take anymore hits. If you are behind on multiple bills, focus on payment arrangements.
Plan 2: Long Term
Identify why foreclosure happened. If you understand what led to the foreclosure, this will go a long way in helping you to avoid future financial pitfalls. Whether you lost a job, had too many medical bills, or simply accumulated too much debt, develop a strategy to avoid the same problems in the future.
Develop a long term budget. This budget should focus on the fundamentals: paying down debt and building up savings. Take this time to really prioritize: can you trim down your cell phone or live without that car.
Discuss debt settlement with your bill collectors. If you are still having trouble making monthly payments based on your current obligations, call each creditor and attempt to work out long term payment arrangements. Many of them are willing to waive late fees or interest rates.
Pay your bills on time, every time. Foreclosure certainly leaves a black mark on your record and there's not much you can do about it at this point, but time and positive action goes a long way. Your mortgage was only one debt. Keeping the other multiple bills paid satisfactorily needs to be a top priority. If you start today paying your bills on time, you are one day closer to a better score. If, however, you continue to occasionally pay late, then your credit will take that much longer to rebound.
Paying down debt will also increase your credit score. The less debt you have, the higher your credit score will be.
Establish an emergency fund. Although an emergency fund will not affect your credit rating directly, a properly established fund will often help to avoid late payments or other financial problems. At a minimum, you need 6 months of living expenses. Every dollar after that is a plus.
The good new is that if you pay your bills on time and develop good financial habits, you will be able to get another mortgage-in time. Foreclosure is not an absolute bar. Generally, you shouldn't consider a mortgage for at least two years, but use this time to focus on your new beginning. Once you have a plan in place, chances are the future won't feel so overwhelming.
Published on BankingQuestions.com 12/15/08
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