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Credit cards and bankruptcy have a complex relationship

On Behalf of | Jul 10, 2024 | Bankruptcy

Credit cards are used frequently in the United States. Recently, a new record was set when the total amount of credit card debt extended beyond $1 trillion. This is a new high point for Americans that has to do with both the growing population and the frequency of credit card use.

Many people are wary of credit cards, believing that they cause bankruptcy. After all, the interest rates on this trillion dollars in debt can be excessively high. Someone who starts missing payments – or who is only making the minimum payments – is just sinking progressively into more and more debt. This could eventually cause them to have no choice but to file for bankruptcy.

Secured credit cards

But after a bankruptcy filing, credit cards can actually be very beneficial. Filing for bankruptcy is initially going to cause your credit score to drop. This can make it harder to get some loans, such as getting a mortgage loan when you want to buy a house or financing a new vehicle so that you can get a job.

But a secured credit card can only be obtained by giving the company a down payment. The balance of the card can’t exceed this down payment. As such, the credit card company has no risk, but you can still rebuild your credit score by making payments on time. This is one of the most effective ways to repair your credit after a bankruptcy filing.

If you are considering bankruptcy, be sure you know exactly what legal steps you need to take and what options you have.