You may be having trouble finding a job, or perhaps you have lost your job and/or have found yourself deep in debt. Here are some things to think about when responding to a financial crisis.
1. No matter what your situation is, you will have options.
You can overcome your financial challenge. It is your responsibility to explore your options and make a fully informed decision. Do not make a rushed decision because you are overwhelmed or pressured by another party. If someone tells you that there’s an easy way to solve your problems, and it seems too good to be true, that’s because it probably is.
2. React now.
Do not put problems off because you are afraid. Do not let the mail pile up. See what you have to deal with. The debt list, budget work, and debt calculators described earlier in this program will help you get there. Organize any letters or correspondence, including summons (lawsuit notices) from creditors/collectors. Begin looking for ways to get reliable, unbiased and honest advice; there are many good sources in most communities, and many of them are free or low-cost. 3. No reason for shame. Financial problems can cause isolation, embarrassment, and anger among other tough emotions. It may help to know that you are not alone. There is someone filing for bankruptcy every 15 seconds in the United States. You are doing what you need to do to take care of your family and/or yourself. Do not isolate yourself or take out stress on your loved ones. Find a good family member, friend, or professional to talk to. Focus on how good you will feel when you have overcome this hurdle.
4. Prepare a bare bones emergency budget.
Create a budget. Your budget will show you what you have to work with. Go through your budget and see what you can cut. Start with the wants–things you’d just like to have, but cannot now afford. Then see if you can cut or cut down on some needs. What do you really need to survive with safety, security, and dignity? This is a good exercise for those not yet facing a financial challenge so they can be prepared. You can follow this budget until you are on your feet.
5. Contact your creditors
Most creditors will appreciate the notice that you will be late or miss a payment.
Become a master negotiator. Ask if they will work with you on a repayment plan. Though you may think you have zero leverage, your creditors may want to be paid back something rather than nothing. Get any agreements you make with creditors in writing and keep a written record of any agreement. If you make an agreement, be absolutely certain you can meet your end of the deal. It’s a good policy to let them know your situation, such as a job loss, and to retain credibility, do not make a promise you cannot keep. You do not need to commit to anything yet. See what options you have. For example, you may be able to get a deferment on your student loans. Look for options like that. 6. Prioritize your bills Do not let threats from creditors, collection agencies, or lawsuits intimidate or persuade you to do something that you think will not work for you. Instead, you should decide what your most important bills are and pay those first. If you are unable to pay all your bills, pay the ones that matter the most first. Housing may come first, followed by food or transportation. Medical insurance may be high on your list. Think through your priorities. Do what you can.
7. Only borrow as a last resort, and be smart and safe about it.
It is difficult to dig out of debt hole with a shovel that digs you into deeper debt. Think through other options that do not involve borrowing. If you must borrow for a need such as housing, medical care or food, be smart about it. Do not take out a home equity line of credit or car title loan (illegal in Washington) because now these assets will be on the line and may be able to be seized by creditors. It would make more sense to make those needed purchases with a credit card. Often, credit card debts are dischargeable in a bankruptcy (though there are limits). Use or look for a low interest credit card. You may need to do the credit card shuffle, transferring balances for a while. But be smart about it. Focus on spending for needs only, housing, medical care, and basic food. A vacation or superfluous charges may be seen as a kind of fraud and not be dischargeable in bankruptcy. Borrowing for a want will make your situation worse.
8. Do not take money from your retirement accounts.
Though it may be tempting, you may need this money later more than you need it now. Hold off on cashing out your retirement account. You may get hit with fees and tax penalties for doing this, so it’s not a good choice. And you may have real trouble replacing these retirement funds later.
9. Return to your negotiating when you have more info.
After some personal assessment of your financial situation, you will have a better idea of what you are able to pay. When you have this information, contact your creditors and tell them the situation. It may be that you do not have the money to pay your debts in full. If they work with you, you may be able to pay something, rather than file for bankruptcy. See if they will work with you. If not, you have to do what you have to do to deal with the situation.
If creditors will work with you, again do not promise anything you cannot deliver. Get any agreements in writing and make sure they will erase the debt completely after you meet the agreement. Of course, make sure the agreement is able to be carried out. Also, some companies may put you on a monthly payment plan that will never wipe out the debt. Be very careful that you understand all the terms of any agreement you plan to make.
10. You may also qualify for assistance programs:
- Earned Income Tax Credit: This is a tax credit for certain people who work and have low wages. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe and may also give you a refund. See a tax professional to determine if you qualify.
- Unemployment compensation: This is usually only available for people laid-off. Call the personnel office of your former company, the state labor department, or your state’s unemployment office to see if you qualify. If you are a union member, ask the union if it provides help with unemployment compensation applications.
- Food stamps: to qualify, your monthly income must be below program limits which vary by family size. Emergency food stamps may also be available in certain circumstances. You can apply for food stamps by filing an application form with any food stamp office.
- WIC (Women, Infants and Children) program offers food assistance to pregnant women or a child under five. Public assistance offices or health departments can provide information about WIC.
- Many unions, churches, and community groups have community cupboards or food pantries that distribute food. Churches and social service organizations like the Salvation Army maintain cafeterias to which families can turn. Contact local church offices, United Way offices, or other social service agencies for information.
- Many food banks are run by America’s Second Harvest at (800) 771-2303 or www.secondharvest.org.
- Other public assistance programs: All states administer some form of cash and other assistance to families with children through the Temporary Assistance for Needy Families (TANF). Applications can be made at local public assistance offices.
- Utility and phone assistance: Utility bills can be reduced by reduced usage. Utilities often have special programs which allow you to reduce the charges for the service you receive. Check with your utility provider to see what programs are available and how to enroll.
- Evaluate need for extra services on your phone, like long distance, call waiting and data plans. Also reducing usage will often reduce your bill. Washington provides the Washington Telephone Assistance Program (WTAP), which provides discounts on telephone fees for eligible households, if at least one adult in the household receives help from the DSHS (Department of Social and Health Services). Call the residential customer service number for the telephone company that provides local service in your town to sign up.
- Federal Low Income Home Energy Assistance Program (LIHEAP): This helps low-income families pay their utility bills. To apply, contact the local agency in the community administering the program.
- Other emergency programs: Some states and communities have other emergency funds available to help with basic needs, such as food, shelter, medical care, clothing or transportation. Some are listed in the social services section of the phone book. In some communities, one agency serves as an information clearinghouse or referral service for various sources of assistance.
- Social Security and SSI benefits based on age: If you are age 62 or over, you may be eligible for Social Security benefits (full benefits at 65?[I thought this had gone up, Tony?] but 62-64 year old retirees are eligible for reduced benefits). Social Security benefits are available only for those who have been employed a sufficient number of years in covered jobs. Avoid applying for Social Security benefits early if you have any other options, because the benefits will be reduced for your entire retirement if you apply early.
- Supplemental Security Income (SSI): This is a federal program open to those whose income and assets are under established guidelines.
- More information (800) 772-1213 or www.ssa.gov.
- Disability benefits: To qualify, the impairment or combination of impairments has to have lasted, or be expected to last, a year or more and has to prevent you from engaging in substantial gainful activity in light of your age, education and work experience. Apply at the local Social Security office.
- Workers’ Compensation: If you were seriously injured on the job, or if you suffer from serious job-related medical conditions, it’s likely that you are entitled to workers’ compensation. Contact the workers’ compensation board in your state directly.
11. Beware of businesses that take advantage of those in a vulnerable situation.
Advertisements for debt relief are everywhere. Be careful who you work with. There are several businesses or non-profit organizations that may provide biased, inaccurate advice and not provide any fundamental relief. We discuss strategies you can take to avoid these businesses below.
12. Consider your options, including bankruptcy, and make a fully informed decision.
General answers to frequently asked questions about bankruptcy are discussed below after the credit counseling, debt management, and debt consolidation sections.