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How to Rebuild Credit After Being Released From Prison

Published by Huffington Post on Tue, 08 Dec 2015

By Virginia C. McGuire Perhaps you're among the estimated 650,000 people who are released from prison each year in the United States, according to the Department of Justice. Or you might soonbegranted early release after prison reforms changed the sentencing guidelines for drug-related crimes. Maybeone of your family members will be released soon, and you're looking for ways to help him or heradjust. Re-entering society after incarceration can be challenging for the individuals themselves, their families and their communities. One of the biggest difficulties is the financial burden on former prisoners and their families after months or years of confinement. Debts carried over from life before prison, legal fees during incarceration, and the need to find a new job after release can all make it hard to get back on track. Your credit history, in particular, mighthave suffered while you were in confinement. But you canstrengthen your finances, manage debt and rebuild your credit by following these steps. 1. Make a budget The first thing Tony Leahy recommends when he speaks to former prisoners about finances is to approach specific problems as part of a money management plan. He'sthe director of the nonprofit Consumer Education and Training Services (CENTS) in Seattle, an organization that offers classes in money management for people re-entering society. "If you follow the principles of money management, your credit's going to automatically improve," Leahy says. That means making a budget and sticking to it, so you're not spending more money than you have coming in every month. Being able to meet your financial obligations will improve your credit score, since on-time payment of all your bills is a good way to strengthen your score. Back to basics: How to build a budget 2. Assess your debt Anyone can accumulate debt, whether it's credit card debt, overdue child support, student loans or mortgages. But people leaving prison sometimes face another debt burden: their share of the legal fees they incurred before, during and after incarceration. Whatever your debts may be, Leahy recommends making a complete list of what you owe and approaching creditors to make a payment plan if necessary. For example, Leahy says,some child support payments mightbe based on a higher-paying job you had before incarceration. If you don't take the time to get it adjusted to fit your new circumstances, you couldfind yourself chased by a collection agency, and your credit score couldsuffer as a result. "Try to make a payment plan with the court rather than avoiding the issue," Leahy says. The budget and spending plan will also help you make your case for lowering your payments, he says. He recommends you pull your credit report to see if there are any surprises. You can getyour report for free from each of the three reporting bureaus once a year. Getting out of credit card debt 3. Find help If you were confined for many years, some of your debts mighthave gone stale. That means the lender is no longer legally allowed to collect the debt from you. Leahy recommends finding a local legal aid clinic with an experienced creditor attorney who can help you figure out which debts you still owe. It couldbe hard to contemplate simply not paying a debt, but Leahy saysmany former prisoners can't afford to pay thosethat have gone stale. "If they have limited financial resources, they should use those to get by, pay for food and shelter rather than paying off stale debt," Leahy says. Leahy cautions that this approach can damage your credit, but a good attorney can advise you. In extreme cases, declaring bankruptcy might even be an option. "Sometimes someone's financial situation is in such a vulnerable position that filing for bankruptcy can actually help their financial situation," Leahy says. He recommends talking to a bankruptcy attorney before taking this step. He or she can advise you about which of your debts can be wiped out by filing for bankruptcy (not all debts can be eliminated) and whether you can keep any assets during the process. 5 questions to ask before declaring bankruptcy 4. Rebuild your credit Once you've inventoried your debt and created a budget, you can start to rebuild your credit. Paying at least the minimum on time for each creditor is crucial, but you can also improve your credit by reducing your overall debt. Time will also help -- the longer your positive credit history is, the better your credit score will be. If you haven't had a credit card for some time, it can be hard to qualify for a new one. A couple of strategies will help you get back to being able to qualify for a card: Become an authorized user If you have a spouse, a parent or another trusted relative with good credit, considerbeingadded to one of their credit card accounts as an authorized user. You'll get your own card with your name on it, but the primary account holder will still ultimately be responsible for paying the bills. This won't have a huge impact on your credit score, but it couldhelp a little. But be careful: If you're added as an authorized user and the primary account holder doesn't pay the bills on time, your score could be damaged. Not all credit card issuers report authorized users to the credit bureaus. See a full list of those that do reporthere. Start with a secured credit card A secured credit card requires that you put down a deposit, which the credit card issuer holds as collateral. Usually, your credit limit will be equal to the deposit, so if you put down $300 your credit limit is also $300. Not all secured cards are created equal. Some come with very high fees, and a few don't report to the credit bureaus, which means your credit score won't improve as a result of your good behavior with the secured card. For recommendations, see NerdWallet's list of the best secured credit cards. Another word of caution: Prepaid debit cards can also be useful if your credit score is too low to qualify for a credit card. But unlike secured credit cards, prepaid debit cards do not report to the credit bureaus, so they won't help you improve your credit history. The bottom line You'll still face many challenges as you rebuild your life after leaving prison. Byfacing your debts and other financial challenges, you can begin to rebuild your credit and bank accounts, and enjoy the good things life after incarceration has to offer. Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email: virginia@nerdwallet.com. Twitter: @vcmcguire. -- This feed and its contents are the property of The Huffington Post, and use is subject to our terms. It may be used for personal consumption, but may not be distributed on a website.
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