Income down? Expenses and stress level up? When the going gets tough, here's how the tough can keep going.
Excerpted from “Weathering a Financial Storm,” Winter 2001/02.
Millions of Americans face financial problems that can start with the loss of a job, a death or illness in the family, a divorce or separation, an inability to control spending and borrowing, or a slowing economy. Here are warning signs of a financial problem:
- More than 20 percent of your monthly net income is going to pay credit cards and other loans (excluding a mortgage);
- Borrowing money to make payments on loans you already have;
- You are frequently at, near or over the limit on your credit cards;
- Only paying the minimum required on your credit card bill; and
- Paying bills late or putting off visits to the doctor because you don't have enough money.
What can you do to protect yourself and your family if you're having financial troubles... or if you simply want to be better prepared financially?
Beware of scams. Con artists are always around, but they can be especially dangerous during uncertain times. Why? Because people who are worried about jobs, investments or retirement savings are more likely to be taken in by attractive-sounding financial offers that, in reality, are frauds. Financial frauds that flourish during tough economic times include bogus offers of "easy credit" and "guaranteed loans" from swindlers who collect money upfront. Also remember that a bad credit history can only be repaired by steady and consistent on-time payments, so any promises to erase a bad credit history for a fee are scams.
Review your spending. Your family's welfare comes first, so continue the payments on your home, utilities and insurance (life, health, disability). Consider cutting back on expenses you really don't need or use. If you reduce outlays, you should have more money available to build an emergency savings fund (see [2009] Ways to Spend Less, Save More in Good Times and Bad) that can help get you through a difficult period without needing a loan or borrowing from your retirement savings.
Be smart about borrowing. Interest payments on credit cards and other loans are an expense, so think about keeping these and other borrowing costs down. Among the strategies to consider: Pay off your highest-rate loans (usually your credit card or department store charge card) first. If you have several credit cards, target the one with the highest interest rate, pay it off, and then move to the card with the next highest rate. Also, try to pay all or as much as possible of your credit card bill each month, so you can avoid high interest charges. But if all you can manage is to send in the minimum payment, make this a priority.
If you think you've got a serious debt problem, address it immediately. Many people may need to turn to others for assistance, such as a knowledgeable friend or relative, or a reputable credit counseling service (see Weighed down by Debt? How to Ease the Load).