Facing and Handling a Credit CrisisPosted by interfuse on August 11th, 2010 Having too much debt can be a serious problem which can take a toll on your self-esteem, cause anxiety and sleepless nights, and require individuals and families to make serious changes in order to avoid foreclosure and/or bankruptcy. I am not a financial expert, however I have first hand experience with finding myself caught in a financial crisis and through persistence and perseverance, I was able to work my way out of debt and back into good financial standings.A few questions you might be asking yourself right now are how far in debt I was, how was I able to get my debts resolved and how long did it take me to get my head back above water. In fact, these are the questions I am going to address along with offering you some tips to help you begin saving money today. This will help you to figure out what sort of financial mess I found myself in and how your situation might compare to what I went through. The situation is urgent. You must start spending less and begin saving more money immediately or face the consequences of not being able to recover from the financial nightmare. If you do not begin to resolve your debts you will face years of not being able to borrow again. This can affect the home you live in, the car you drive, your ability to take vacations, and require you to save to purchase items you would normally just charge onto your credit card. A bad credit score and serious delinquencies on your credit report are not an easy thing to change, especially when no one trusts you can?t establish any new line of credit what-so-ever because no one trusts you. Let?s get a handle on things. What type of debt and who you owe, matters. Managing Credit Card Debt If you have any type of credit card debt and are paying interest you should seriously look at the possibility of stopping any future charges you are making on your credit card and consolidate your debt onto a 0% Interest Balance Transfer credit card. You might get these offers in the mail or you can find them online, take a serious look. Don?t just reduce your interest rate by calling to lender on the back on the card, eliminate your interest payments all together! After you have moved transferred your balance, I am going to stress to not charge anything to this card. These charges will become the last thing to get paid off and may immediately begin collecting interest. If you are like me, you might need several of these cards but trust me, paying as much as you can towards your principal is important and once you have enough of your balance paid down that you can move the remain balance to a single card is a great feeling. Another thing to note with a balance transfer card or any credit card for that matter is to never make a late payment. On a 0% Balance Transfer Card this will kick in immediate interest and penalties. Kind of like a magician playing a vanishing act with your finances, it?s no good. Cut Costs Where-Ever You Can Take a look at your statements and figure out where all of your money is going. Fast-food, gourmet coffee, services, subscriptions, (unknown charges?) everything you might want but you certainly don?t need to be spending your money on. For fun, make a copy of your statement and highlight only the items that you need (or vice-versa). Take out a calculator and add up the costs of everything you wanted and multiply that number by twelve. My hope is that a light-bulb has gone on here. Now, you will have to use your best judgment to decide where you can cut spending and where you can continue spending. It might not be fun, but seriously, anything you can cut from your monthly budget will be translated back to paying off the principal of your debts. Next we will look at some of these things on your statement that have a fine line between wants and needs that you can actually save money on. Places to Save Fast food; if you are eating two meals out per day you are probably spending an average of $12.50 per day on food (over $4,500 per year). If you begin shopping and cooking your own food at home you can cut your costs down in half and actually eat three meals instead of two! Not only that, eating out is not healthy so this will also help you in the long run by saving you from serious medical expenses that can be a result from eating out too often. Cutting fast food from your diet produces an average yearly savings of $2,100. Drink Starbucks often? You can also cut this from your spending and you will pocket an additional $1,400-$3,650/year. Every once in a while, ok, but once or twice a day? It?ll cost you and the bathroom scale will show it. Still smoking cigarettes? Seriously, it?s money up in smoke and detrimental to your health. This is an additional $2,500-$7,500/back in your bank account. I am non-smoker of 6-months strong as I am writing this?I used health and money as a motivator. Random charges, if you?re like me you might see some random charges and purchases on your cards that you did not approve. Get these removed or request a new card number to halt these charges. There?s another $250-$750 back in your accounts. You see what I am getting at here, right? By use of some clever thinking you can put $10,000/year or more back into your bank account and use it to pay for more important things (like getting out of debt). The motivation you have to quit spending and bail yourself out of debt will reflect your bottom-line and the amount of time it will take you to get your head back above water and inevitably out of debt completely. Remember, debt is what you owe. It is money that you have spent which you do not currently have. So take a moment to slow down, reflect on the events that took place that got you here and start making changes no matter how big or small. We want everything you can possibly save up to be paid to the debts that you owe. Even More Places to Save You didn?t think I was done yet, did you? No, for me saving money has become a way of life and there are many, many more ways you can save money. Reassess your normal monthly bills with your providers and remember when you speak with them, make it clear that you aren?t interested in any additional services, you are only interested in possible ways you can reduce your bill. Re-Evaluate your: - Cable or Satellite Bill - Home Phone Bill including any un-needed long-distance packages - Cell Phone Bill - Interest rates on any home or auto loans - Insurance policies; find a good, licensed insurance agent (you just might walk away with a better policy at a reduced rate then what you are currently paying) - Electricity Bill; Reduce costs by setting up an Electricity Meter Monitor (from personal experience, these work great) Increasing Your Income Ok, so we?ve done a lot of saving and bearing in mind that a penny saved is a penny earned, you might have just brought an additional $10,000-$25,000 to your reserves (obviously depending on your present situation). We are hoping you are currently holding a full-time job and if you haven?t already are considering a second, part-time job that you can put a few additional hours into in the course of your work-weeks. Whether it be a couple of nights a week or a few hours on the weekend, you want to be certain that you have opened up an avenue to bring in additional funds to your accounts. When I feel into debt, I turned to eBay to quickly help reverse my financial downward spiral. In fact, I wrote all about it (here). If you are currently in a credit crunch I am certain that with some time, effort and perseverance you too can tie up all the loose ends and get yourself back into good financial standings. The bottom line; save as much money as you can and increase your income as much as possible. Like it? Share it! More by this author |