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Rebuilding Credit after Bankruptcy: Paying Off Remaining Debts

In our last blog in the "Bounce Back from Bankruptcy" series we discussed how to deal with problems that can arise from discharged debts, and the importance of saving money post-bankruptcy. However, even after being able to discharge some debt, one can still have remaining debt post-bankruptcy; some of the remaining debt could be from: reaffirmed debts you agree to keep paying with a creditor, debts to friends and family, student loans, and taxes that weren't discharged.

There are multiple ways to paying off remaining debt; however it is up to the person in debt to decide which method is right for them. Some ways to start paying off other bills quickly is to pay the minimum monthly payment offered on a bill statement, pay off the bills with the highest interest rates first, or to pay the bills with the lowest balance first. Each method is effective, it just depends on which method works for the person paying off the debt. 

When you pay the minimum monthly payments on bills it will quickly help lower your next month's balance. With that said it is important to continue paying the same amount each month regardless if the monthly minimum is lowered. Creditors lower the monthly minimum payments in order to keep those in debt paying increased interest each month.

To reduce interest payments, start by paying off debts on credit cards with the highest interest rates, these usually are department stores and gas companies. By paying off credit cards with the highest interest rates first you free up money to put towards paying off other bills, thus saving the most money in the long run.

Another tactic to pay off remaining debts is to pay the smallest bills first. This is a good idea because people tend to like to see a progression when paying off their debt. They may prefer to see one bill completely paid off before moving on to others. Once they have one bill paid off they can start putting the money that was being put toward the paid off bill toward others. The results from doing so will help speed up the process of paying of the debt of other bills.

However, to keep on a debt free path, one needs to cut up or freeze their credit cards that are accumulating debt. This will reduce temptation of making hasty purchases on these cards; otherwise the purchases made on these cards will add to the current debt, thus continuing the problem.

Look out for next week's blog in our series, about the decision those going through a bankruptcy have: to reaffirm debt or not to reaffirm?

Works Cited

Ryan, Paula Langguth. Bounce Back from Bankruptcy: A Step-by-step Guide to Getting Back on Your Financial Feet. Tracys Landing, MD: Pellingham Casper Communications, 1998. Print.

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