How to Rebuild Financial Confidence After Debt Relief

Debt relief is meant to help you turn a negative financial situation into a positive one. For example, you might use debt resolution to pay off credit cards for less than what you owe. Or you might turn to bankruptcy to get back on your feet after a major hardship. 

Getting debt help is the responsible thing to do, and you should feel good about taking care of your finances. 

But what if you don't feel so good about it? What if instead, you feel embarrassed or ashamed or like you've failed financially because you had to get relief from debt? 

That's when you need a reminder that your debt doesn't define you and that you can move toward a brighter financial future. 

Here's how to do it. 

1. Build a Budget

Making a budget is creating a plan for how you spend your money. It's one of the most basic tools you can have in your financial toolbox, and it can be a huge confidence booster.

Why? Because a budget puts you in charge of where your money goes. When you sit down and intentionally plan how to spend each month, you feel more confident about your money decisions. 

How do you make a budget? There are different methods you could try:

• 50-30-20 budget

• Zero-based budget

• Cash envelope budget

You can experiment with different budget systems to find the one that feels most comfortable for you. 

2. Start an Emergency Fund

An emergency fund is money you set aside for rainy days. For example, your car breaks down, your dog gets sick, or your roof leaks—those are all situations where an emergency fund can save the day. 

And it's easier to feel confident after debt relief when you know you've got a little money tucked away for the unexpected. You don't need to run to a high-interest credit card or loan to cover your financial needs because you've planned ahead. 

Here are a few tips to get your emergency fund started:

• Decide how much you want to save. Financial experts often say you need three to six months' worth of expenses saved for emergencies, but that's a big target to hit if you're just coming out of debt relief. You could aim smaller and save $500 or $1,000 to start, then work on adding to the balance. 

• Open a dedicated account. If your emergency fund is mixed in with the money you use to pay bills or other expenses, it's easy to spend it. Set up a high-yield savings account that you can link to your checking account for easy transfers.

• Automate. Saving money is a habit that can take time to develop. You can simplify things with automated transfers from checking to savings. Even if it's a small amount, like $5 or $10 every payday, you're moving in the right direction. 

• Use windfalls or found money. When extra money comes your way, consider a deposit to your emergency fund before you spend any of it. Whether it's a $2,500 tax refund or a $25 rebate, that's all bonus money you can use to grow your rainy day account. 

3. Reestablish Credit Slowly

Debt relief can sometimes damage your credit. Bankruptcy, for example, usually takes major points off your credit score. You can get those points back over time. 

Your financial confidence can increase as your credit standing improves. The key is to take it slowly and bake some good credit habits into your plan. 

• Become an authorized user. Authorized users have access to someone else's credit card, but they're not responsible for the debt associated with it. Authorized user status could help your credit score if the person who owns the account uses it responsibly. You could ask a family member to add you to one of their cards as a first step to rebuilding your credit.

• Open a secured credit card. Secured credit cards usually require a cash deposit to open. For example, you might need $200 for a new account; that's also the amount you can charge. Secured credit cards could help you get your credit score back in shape if you regularly pay on time and you keep your balance low.

• Consider a small loan. If your credit score is low after debt relief, you might still qualify for smaller loans. Similar to credit cards, loans can help you build a positive credit history when you pay on time. Managing a small loan could help you build confidence and feel more comfortable if you need to get a larger loan down the line. 

Check your credit reports regularly to track how your efforts are paying off. It's also a good idea to check your credit for errors that could hurt your scores. Learn how to check your credit for free. 

4. Set Financial Goals

Goals give you something to work toward. Setting goals after debt relief can help you regain confidence if you're able to hit the targets you aim for. 

For example, you might set a small goal to save $500 for your starter emergency fund. That kind of goal is doable and realistic if you have a plan to reach it. For example, you could save $25 each week, and in a little more than six months reach your goal.

Once you reach your first goal, set a slightly bigger goal. You might aim to save $1,500. Each time you mark a goal off your list, you set a new one that requires you to push yourself just a little bit further. 

These baby steps can help you build momentum so you feel confident enough to tackle even bigger goals. That could mean buying a home, starting a business, or saving $1 million for retirement. 

You might be surprised at just how far you can go when you believe in yourself. So, if you've been through debt relief or you're thinking of getting help with your debt right now, know that there is a light at the end of the tunnel and that things can get better.