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In case of emergency, break glass!

June 11, 2010

Are you in the middle of a financial fire?

Stress can lead to strange things.  When we’re stressed our body changes and sometimes we don’t think the same.  When we see immediate sources of stress it may even trigger a fight or flight response within us.  I’m not an expert on the human body, but I think sometimes stress can help us understand some of the financial decisions individuals make.

When one can look from an unbiased decision it is easy to see bad decisions by others.  Sometimes you may know someone who is deep in debt, but still can’t control his or her decisions.  You may even see someone whose financial troubles may increase or start an unhealthy addiction for someone.  The problem is, when everything is falling down around us it is the most difficult time to make rational decisions.

If you are in a financial emergency it is important to get back to the basics.  If you have more expenses than income every month, you need to make one of two choices:  either make more money or spend less.  Sometimes the trouble with a lot of debt it isn’t obvious how you can reduce your spending and due to a variety or reasons you may not be able to increase your income.

If this is the situation you find yourself in, take a deep breath, unplug your phone to stop the constant demands of creditors, and come up with a plan.

If you need help with your plan here are my suggestions:

Take care of your necessities:  Do what it takes to make sure you have food, shelter, and basic utilities.  You may need to cutback on what you eat and eventually look for cheaper housing, but before you pay anyone else, make sure you have your necessities covered.

Provide for transportation:  In order to keep making money, you need a way to get to work.  Stable transportation can provide that whether it is public transportation, walking or biking, or maybe a cheaper car than the one you are driving now.

Prioritize other debts:  If you owe money to the IRS, you want to get them paid off.  If you owe medical bills, you want to make sure they eventually get paid.  If you have secured debt where people can take something of yours, you want to try to keep them paid.

Credit Card debt gets paid last:  If you stop paying on your credit cards it seems like there is a lot of bad things that happen.  Your interest rates will go up, you will be charged late fees, and eventually you will be sued for the credit card companies to get paid back.  On the plus side, it usually take credit card companies a long time and several trips to other creditors before you actually get sued and if you stop making payments for a while, your creditors may be more likely to work with you to cut down what you owe to them.

At this point I think it is important to mention that I believe individuals have a moral and legal obligation to pay off their debts, but if you find yourself in an emergency it is wise to make good decisions.  Here are some mistakes individuals make:

Letting the people who put the most pressure on them get paid first.  If you stop paying your credit card debts you are going to hear about it.  You will get constant calls from creditors and some of them can be pretty nasty.  This convinces some people to pay their credit card bills to stop the calls and then neglect other things like food and shelter.  If you want to stop the abuse, unplug your phone.

Putting credit card debt on your house.  There are times when people refinance their house so they can pay off their credit card debts.  If you do this and you still can’t afford to pay your debts, this is a huge mistake.  It will take a much longer time before a credit card company will collect money from you, than before your house will be foreclosed on and you will have no place to live.  It may sound enticing if you look at getting a better interest rate, but the downside can leave you homeless.

Looking for an easy way out.  If you are in big financial trouble it is going to be tough to dig your way out.  You need to drastically cut your expenses and look for any extra jobs you can find.  It isn’t easy and there are no shortcuts.  When times are tough, late night infomercials seem pretty enticing.  Don’t believe the commercials from for profit debt consolidation companies and lawyers who claim to be able to get you pennies on the dollar for overdue taxes.  Most of the time all these companies get is a couple of thousand dollars from you without you getting any solutions.

Life can be tough at times and this article is by no means a cure all.  This isn’t professional advice, but can help you get started.  If you find yourself in a situation where you feel you are over your head look for help.  Make sure the groups you go to are looking to help you, not just collect a fee from you.  Church groups, community organizations, and for people in northeastern Colorado the non-profit organization Consumer Credit Counseling Services of Northern Colorado and Southeast Wyoming can be a good place to start.  If you feel like your over your head, feel free to give them a call at 800-424-2227 to see how they can help you today.

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