Life after bankruptcy: living well with bad credit
It's no secret that Americans' paychecks and bank account balances have taken it on the chin during the past two years. With a record number of mortgage defaults and declared bankruptcies, it's a safe bet that more and more of those who once had good – or even average – credit are now living with a bad credit score.
For many, their good credit score and on-time payment status are like a badge of honor. Or at least, they used to be. And while in "the old days" (before the recession) many might not think twice of proclaiming "I have excellent credit" to passersby and family members alike, few would relish sharing news of their personal bankruptcy with the world – including family and the parents at school pickup.
But that's exactly what Geoff Williams, 40, the co-author of Living Well with Bad Credit and a regular contributor to WalletPop did. In his new book, Williams shares intimate details of his personal bankruptcy and offers lessons that may help others avoid the same fate.
WalletPop recently sat down with Williams to find out just how well he's living these days -- and what made him take his story public. Here's what he had to say:
WalletPop: First, the obvious: Why tell the world you declared bankruptcy? Of course, the goal of telling your story and your book is to help people through what you experienced, but were you at all worried that this could backfire and affect your career as a finance writer? Or that it would change the way neighbors and the parents at your children's school would view you?
Geoff Williams: I wasn't crazy about telling everyone about my bankruptcy, although when I was going through it, I ultimately knew I'd probably end up writing about it somehow. Not all writers share their embarrassing, personal tales, but I'm one of those writers who generally does. That said, I kept my mouth shut for a while. But when my agent contacted me and asked if I'd want to co-write a book based on an idea that one of her authors, Chris Balish, had come up with, which became Living Well with Bad Credit, I just knew I couldn't ignore the fact that I had faced bankruptcy.
Although my credit score is on the mend and much higher than it used to be, to write an entire book about living with bad credit and to ignore the fact that I had had bad credit -- and still do -- would have felt extremely dishonest. So from the start, I told my agent and Chris, and said that if they were uncomfortable with my bankruptcy, they should find another author to work. They didn't see it as a problem, and when we found a publisher, HCI Books, they seemed to feel it added something to the book, and so off to the races we went.
If admitting my bankruptcy does blow up in my face, I'll be sad, because I enjoy writing about personal finance, but I have plenty of other topics I could write about -- I've been a business journalist much longer than a personal finance writer. But I was drawn to writing about personal finance in the first place because of all my mistakes over the years. About two months into writing for WalletPop, I wrote a post about my first payday lending experience, which had come right about the time I was visiting with a bankruptcy lawyer. Particularly with that post, and several others I did with payday lending and others where I'd discuss overdraft fees that my bank had clobbered me with, I tried to make it pretty clear to readers that if they wanted advice on investing or getting rich, they should go to another WalletPop writer.
As for what our neighbors, my friends and others think, well, I'm in the process of finding out. My parents wish I'd have kept my mouth shut and had written about anything else, but I've talked about my book on my Facebook page, so I know that some of my relatives know about the book and may know about my financial history. And some friends have learned about it and are still my friends. I haven't shied away from my bankruptcy, but you know, it's not like I go to my daughters' parent-teacher conference and say, "But before we discuss how Lorelei's coming along with her reading and how Isabelle is faring in social studies, I really should tell you all about my financial history..."
So I'm sure many people I know don't know, but, sure, it's going to come up, and some people probably will think less of me. Long ago, I probably would have looked down on me, too. All I know is that I didn't wake up one day approximately $40,000 in debt. It was a long, continual slide, and over the course of almost two decades, I did everything I could to not declare bankruptcy. That's why during the bankruptcy, I didn't lose anything substantial to the court. We had and still have a house, but the equity was gone. We owned two cars, but they were paid off and junkmobiles. There was nothing left of value that they could take.
WalletPop: Do you think bad credit overall is the result of one or two bad decisions, like biting off more than you can chew on a mortgage or car loan? Or is it a series of things that happen over time? Or could it even be a little bit of both?
Williams: For some people, bad credit really is out of their control. They're stricken with cancer, for instance, and their health insurance won't pay for all the treatment. Or there's a divorce and one spouse's credit card debt kills the other's credit score.
But with most people, it begins with one mistake. Now, one mistake in your finances isn't going to lead to a life of bad credit. But if it takes a while for you to recognize a financial decision as a mistake, you're going to keep making that mistake, and it's going to fester. For instance, if you buy a car that's too expensive, you might not notice right away that suddenly you aren't paying off your credit card every month like you used to. So now you're making two mistakes. You're paying too much for a car every month, and you aren't paying down your credit card debt. At some point, you realize what's happening and become concerned about the credit card debt, so you pay it down more, which is great, but because of that, instead of cutting back on your entertainment budget, you stop putting money in your savings account. And now every month, you're making three mistakes. It's those seemingly little individual mistakes that snowball and can really lead to serious trouble.
WalletPop: Are there often signs that your credit is slipping? Or do you think a person wakes up one day with bad credit?
Williams: Some people wake up one day with bad credit; as I said, a medical emergency pushes you into debt, or maybe you lose your job and three months later, your financial picture is in pieces. But for most of us, I think there tends to be a lot of signs that your credit is slipping -- and then one day, yeah, you wake up as a person with bad credit.
The trick is spotting those signs, and it can be hard because it's a little like diagnosing a disease. Nobody wants to hear bad news, and it can be scary to look at your situation and realize there are signs that someday you're going to be trapped under a suffocating mountain of debt. And, of course, just because you recognize the signs doesn't mean you're going to be able to fix things. When I began taking out loans from this one particular bank that solicited our business in the mail, I knew that what I was doing was stupid and irresponsible, and I could see where things were probably headed. But when you're desperate to feed your family and keep the mortgage paid, and a company is willing to give you money to make your problems go away for a little while, you tend to say, "OK, thanks, I'll make this work somehow, and sure, I'll pay 29% interest..."
WalletPop: Was there any fear that people would perceive the title of the book as a license to blow their good credit? That it would create the thought, "My credit doesn't matter. I can still have a great life," or that people would feel less responsible to protect their credit?
Williams: No, I wasn't too afraid of that, and I don't think Chris was either. I mean, if anyone reads our book and gets the idea that they should blow their credit, then they haven't really read the book.
We make it clear from the outset that if you have good credit, you should do what you can to keep it. Credit matters, but we need to put it perspective. Just like what goes up must come down, what goes down can go up. If you have bad credit, you can bring it back up. Too many people find themselves wallowing in misery and depression because they owe more than they can pay, and when they are paying, they're paying late, and because of that, their credit scores are plummeting and they're giving up on themselves. And when that starts to happen, it's time to stop worrying about the health of your credit score and past time to begin worrying about yourself.
WalletPop: Many think bad credit means your life is over. What are some of the most important elements to living well with bad credit? And if a person can still rent an apartment or take a vacation with bad credit, how does that differ from living well with so-so, average and good credit?
Williams: Living well with bad credit is harder than living well with good credit. That's simplistic, but that's the basic difference. There are more hoops to jump through, and more hassles to deal with. For instance, many apartment complexes will do a background check, which means checking your credit history, so we argue in the book that you shouldn't throw up your hands and decide that you can't get an apartment. You can. But you're going to have to look longer and harder for one and be more creative in the way that you look for an apartment.
Taking a vacation is the same way. If you have bad credit but you still have a working credit card, you're not going to have trouble – provided you have the money to pay for your vacation. But if you no longer have a credit card to book hotels and rental cars, things get trickier because many hotels and rental cars treat debit cards differently from credit cards. If you book a hotel for one night with a debit card, the hotel might hold enough money to pay for an extra night and then not release that money until several days later.
So, really, living well, or as well as you can, with bad credit means first being aware of the challenges of not having a good credit score. A foreclosure, for instance, may be brought up at a job interview whether you want it to be or not. And then you need to realize you have to have the foresight to figure out how to manage these challenges and get past them so you can live your life as normally as possible.
WalletPop: Having started out with good credit, and then living well with bad, what have been some of your "light bulb" moments?
Williams: You know, as crazy as it may sound, I think filing bankruptcy was one of the smartest financial decisions I've ever made. My light bulb moment was realizing that if I was going to have any sort of financial future, and that if I wanted to save for retirement and not someday become a ward of the state, and that if I had hope of putting money away for my daughters' college, I had to unshackle myself from my financial past.
WalletPop: What lessons do you think parents living with bad credit should teach their children to prevent the cycle from repeating? Any tips you want to make sure you bestow on your kids?
Williams: One of my daughters is eight, and the other is almost six, and frankly, I'm still trying to figure that out myself. I do talk to my kids about money, and they seem well aware that it doesn't just magically appear out of a machine at the bank. I think it's important for parents with bad credit talk to their kids about money, even if it's just in the abstract. No matter how they do it, I think parents should warn teens and college kids about the dangers of credit and that they shouldn't sign up for a credit card casually.
I plan on urging my daughters to read my book shortly before they go to college. I want my kids to understand that credit cards and loans shouldn't be feared, but instead, they should be respected and handled very carefully. And I hope that by the time they hit their senior year of college, they've heard just about every one of my financial tales of doom. For me, that's important, since a lot of my mistakes began shortly after graduating college and moving to a new city. I remember thinking at the time, "Well, if anything goes wrong and I run out of money, I'll be fine. After all, I have this credit card..."
Gina Roberts-Grey is a frequent contributor to WalletPop.