Free from foreclosure: what to do afterwards

Six ways to rebuild your financial situation and lay the groundwork for a successful future.

One in every 200 homes each year experiences foreclosure, according to a NeighborWorks report. And it will likely be one to three years before they can qualify for another mortgage to purchase another house. After foreclosure, you have the freedom to start over with your housing goals and priorities. Moving on from an unaffordable house payment allows you to rethink your housing situation. Foreclosure on your credit report generally reduces your credit score by 100 points or more, according to, so it is also time to recover financially and address any debts.

According to the Starting Over After Foreclosure Toolkit, the unit on Rebuilding Your Financial Situation and Credit History covers six topics to rebuild your financial situation and lay the groundwork for a successful future.

  1. Understand the result of your housing situation: How did your outcome—short sale, deed-in-lieu, or foreclosure—affect your personal credit report and score? Ask your lender if you still owe mortgage debt or was it forgiven. What are the income tax implications?
  2. Confirm your current financial situation: What is your new budget and priorities for spending and saving?
  3. Make a plan to pay down remaining debt: Create a plan to stay on track with rebuilding credit. Use a method to track your expenses and control your money. Choose a debt pay-down strategy, such as:
    • “Debt Snowball”: List debts in order of total balance. Start with the smallest debt first to  reduce it as quickly  as  possible. Apply any extra funds to the next debt. Once smaller balances are gone,  apply  that money  to  the balance with the highest interest rate.
    • Highest Interest Rate: Prioritize your list of debts by interest rates. Pay first  on  the  debt  that  has the  highest interest rate and continue paying until  it’s paid off. Then,  add  any  extra  funds  to  the second highest interest rate loan or credit card.
    • Power Payments: can be made in a variety of sequences including starting with debts with the highest interest rate first, smallest balance first or shortest term first. While paying off debt, The Utah State University Extension PowerPay website provides a free personalized debt analysis.
  4. Communicate with your creditors: If creditors call, write down the name of the creditor or collection agency, the exact amount claimed due, and the date and time of each phone call, using the Creditor Communication Tracking worksheet. Dispute debts you disagree with in writing, using the Sample Letter for Disputing Errors on Your Credit Report.  You can also be proactive by contacting your creditors when you do not have enough money to pay what you owe to explain your situation plus the amount you can afford to pay each month. Try to negotiate.
  5. Understand your credit report and score: Learn the facts about credit scores and how to interpret them. Order your free credit report from Review your credit report and correct any errors.
  6. Take actions to improve your credit report and score: Keep credit cards manageable and under control by paying off or lowering credit card balances. Your goal should be using 30 percent or less of your available credit. Another tip is to know when to take on new credit such as a secured credit card to rebuild credit. Set up automatic bill pay or use bill reminder features on your phone or computer to start habits of paying every bill on time, every time.

Staying on track to rebuild credit after foreclosure requires patience and keeping your goals in mind. Over time, negative information on your credit report will lower the influence on your credit score. For more information on how negative credit items can influence your credit score, visit my FICO. and

Michigan State University Extension has HUD/MSHDA certified housing counselors on staff to assist with the difficult process of foreclosure. To find a counselor near you visit the MI Money Health website or call your county extension office. Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at the MI Money Health webpage

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