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Financial Literacy - How to Prosper
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How to bounce back from adversity

Sometimes bad things happen, in life and in your finances. A job loss or medical condition can lead to foreclosure, bankruptcy, divorce. These events delay prosperity.

Oftentimes the cause of the problem is beyond your control. But your actions after a crisis can determine how badly -- and to some extent, for how long -- your finances will be affected.

Follow these tips to bounce back as quickly as possible from three types of adversity.

Emerging from bankruptcy

Avoiding bankruptcy can be tough if your income doesn't come close to covering your monthly obligations.

Before you get to the point of no return, pay attention to warning signs that you're heading in that direction. The writing may be on the wall "if you're borrowing money constantly from family in order to pay your bills or if you're getting notices of garnishments on the job," says Kevin Chern, president of Total Attorneys in Chicago.

"Only by doing a detailed analysis of your debt-to-income ratio and your ability to impact a change in your expenses or income are you going to get an idea of whether you should consider bankruptcy," he says.

Ironically, it may be easier after a bankruptcy to rebuild your credit than it would have been before you filed, Chern says.

With a clean slate, you have no outstanding debt and you can't file another bankruptcy case for eight years. You may look like a better credit risk -- maybe not a good risk, but a better one.

Rebuilding your credit will be vital to your economic recovery.

"If you do take steps to be responsible after filing the bankruptcy, it's not going to necessarily take 10 years for you to start rebuilding your credit," says Chern. However, the bankruptcy will hang around on your credit report for that long.

Controlling your spending is the best way to begin rebuilding your finances. Turning off lights, eating at home, using public transportation or carpooling as much as possible are all small changes that can have a big impact on your finances overall.

"You have to know what you spend to identify where you're overspending and use that to keep a budget, and then be committed to living within that budget. Plus, start a savings plan," says Chern.

Chern says to rebuild credit, you should consider getting a secured credit card from your bank which allows you to charge purchases against your savings account. Creditors will more likely offer you a loan in the future if you demonstrate you can responsibly use credit.

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Flourishing after foreclosure

Some 13.16 percent of mortgages are in foreclosure or at least one payment past due, according to the Mortgage Bankers Association's National Delinquency Survey.

If the lender is amenable, taking a loan modification may be a lifesaver for homeowners drowning in debt. A loan modification will change the terms of the original loan.

Though it's always been an option, the housing crisis made loan modification a common concept. Plus, the Obama administration's Home Affordable Modification program, part of the Making Home Affordable plan, streamlined the process for lenders to modify loans, but did make the rules for homeowners somewhat complicated. The best place to start is by speaking with your lender to determine your options.

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