Facing a Financial Crisis

If too much debt is threatening to sink your ship, the following tips may help you maintain stability and weather the storm successfully.

1. Examine the Reasons Behind Your Crisis.

Solving financial problems requires that you understand the underlying cause of the crisis. Examine the reasons objectively. If you have health issues, loss of employment, or have sustained damages from a natural disaster, there are agencies that can help you. Do some research and don’t be afraid or embarrassed to ask for help. If your money problems are a result of poor management or overspending, don’t berate yourself. Maintaining your self-esteem and a positive attitude will enable you to make good rational decisions so you can work your way out of debt.

2. Analyze and Categorize Your Debts.

Debts fall into two categories, secured and unsecured. Secured liabilities are guaranteed by property, either real or personal. A mortgage is a secured debt. An auto loan is a secured debt. Credit card balances are the most common example of unsecured debt. List all your debts and determine which category each of your debts falls under.

3. Prioritize your payments.

When you are in a financial crisis, the payment order for your bills should be determined by their importance in sustaining and maintaining your life. Keep in mind that, if you don’t make the payments on a secured debt, the creditor can ultimately take control of the property used for collateral on the loan.

4. Cut Expenses.

Look for ways to reduce the amount you pay out each month. Trimming the fat from your budget requires diligence and sacrifice. Pack a lunch, give up smoking, use grocery store coupons, and search out free entertainment. Learning to save and live more frugally can be a giant step towards financial stability.

5. Increase Income.

There are a number of ways to increase income. A second job may provide the extra funds needed to improve your financial status. However, take into consideration the expenses that may be associated with working longer hours, such as childcare, transportation, and additional taxes. Speaking of taxes, you may be able to increase your net take-home pay by increasing the number of exemptions you claim. Getting a refund at tax time is nice, but the IRS doesn’t pay interest on the extra money paid in to them during the tax year. Having that extra cash at your disposal each payday is wiser. Consult with your accountant or a tax expert before you take this route to make sure you don’t make an adjustment that could result in a tax liability at the end of the year. Selling personal property is another option that may help you overcome a financial crisis. Just be sure to get the fair market value of the property and don’t part with items that will cause you emotional distress. To conserve cash, look into the possibility of using the barter system. A number of organizations exist that specialize in connecting traders and will help you trade your skills to obtain some of the merchandise and services you need.

6. Communicate With Your Creditors, But Don’t be Intimidated.

Ignoring phone calls and mail from your creditors may only make matters worse. You need to know what actions your creditors are planning to take against you, so you can take appropriate measures to protect yourself from lawsuits or the loss of an asset. Keeping the lines of communication open makes negotiations and settlements possible. The Fair Debt Collection Practices Act is a federal law designed to protect you, the consumer. It sets rules that creditors and their agents must follow when attempting to collect a debt. Become familiar with these rules and don’t allow collectors to abuse or bend the law.

7. Develop Good Bookkeeping Procedures.

Keep your cash accounts balanced and in good order. When finances are being stretched, it is imperative that you know exactly how much cash you have to work with. The secret behind good accounting practices is organization. If you don’t have a filing system for your bills and cash statements, set one up. Discrepancies in your cash accounts should be checked and verified with your bank as soon as possible. Never write a post-dated check. Never write any check without making sure your account contains enough funds to cover it. The fees and penalties banks charge for returned checks are high and will only worsen your financial situation.

8. Consolidate with Care.

If you are a homeowner, you may be able to qualify for an equity loan to consolidate your bills into one easier-to-manage payment. Remember that a home equity loan means that you are tapping into the cash value of your house. There are many different types of home equity loans, but before you sign on the dotted line, check out the lenders in your area and make sure the one you work with is reputable. A consolidation loan can be a permanent solution to your money woes, but you must have the discipline to cut up your credit cards and change your spending habits.

9. Credit Counseling

A reputable credit-counseling service, such as Debt Free, can be a viable solution for long-term financial problems. In addition to providing valuable financial education, they also offer workable debt management plans. This is not a quick fix. However, it is one of the most sensible ways to get out of debt and stay out of debt.

10. Bankruptcy.

Pending legislation may make it more difficult for individuals to obtain relief through a bankruptcy filing. Regardless of whether this legislation changes the current bankruptcy laws, this option should be viewed as a “last resort.” You need competent legal advice and guidance before, during, and after a bankruptcy filing.

Our Consumer Credit Counseling and Debt Settlement plans help you avoid financial crisis. We will be with you every step of the way.

Facing a Financial Crisis

Carol Costa is a professional writer with a business background in accounting and real estate. She specializes in articles on accounting, taxes, and real estate investment. Her features have been published in numerous magazines and newspapers in the United States and Canada. Costa has owned and managed a bookkeeping and tax service, worked as a staff accountant at a CPA firm, and managed accounting systems for a variety of businesses. She has co-authored two financial titles for Pearson Education: Teach Yourself Accounting in 24 Hours and The Complete Idiot’s Guide to Surviving Bankruptcy. This book is a tremendous guide, not only for those already involved in bankruptcy, but also it offers invaluable help to those facing bankruptcy. It is available with discount pricing at Amazon.com.”