Owning your own home is part of the quintessential American Dream. Unfortunately, for a large percentage of the U.S. population, this dream seems impossible. For many younger adults, low-income levels combined with high levels of personal debt make home ownership unattainable.
Individuals with low incomes or substantial debt may struggle with mediocre credit and limited financial liquidity, as most of their income goes directly pay monthly bills and credit card debt. These individuals may believe that they will be forced to rent for the rest of their lives while barely scraping by on credit.
If you find yourself overwhelmed with credit card debt and unable to save money for a down payment, it doesn’t necessarily mean that you have to give up your dream of owning a home. Instead, it means you may need to think outside-the-box about the steps you may need to take to eliminate debt and rebuild credit.
Bankruptcy can help you eliminate outstanding unsecured debts
For many Ohioans, unsecured debts like medical bills and credit cards are a major source of debt. These bills may eat up a significant portion of your monthly income, leaving you effectively living paycheck to paycheck. If your debt load is so high that you can’t feasibly pay it off or put any money towards savings, you may feel trapped in a vicious cycle.
The only way to free yourself and build a better future is to take action. If you can’t find a way to pay off your debts on your own in the next few years, it may be time to consider bankruptcy. Some people may view using bankruptcy as a means to rebuild credit strange, but it can work.
Yes, discharging overwhelming debts via bankruptcy will negatively affect your credit score, but only in the short term. Provided you don’t rack up debt again, you will have more income every month to put in savings. After bankruptcy, you can also work diligently to rebuild your credit.
With the right steps, you could get a mortgage in three to five years
A bankruptcy discharge does not preclude you from qualifying for a mortgage. While Chapter 7 bankruptcy stays on your credit report for a decade and Chapter 13 for seven years, many lenders provide options that can help you start rebuilding your credit almost immediately after bankruptcy.
You can obtain a new credit card within weeks of your discharge. Provided that you use it responsibly, that card can help you build the foundation for an improved credit score. Within a year, you should be able to add additional lines of credit.
By paying your credit card off each month and saving the money you were spending on credit card interest and fees, you could find yourself in a much different financial situation within three to four years. At that point, many lenders will review your income and consider you for a mortgage.
