Financial crisis: The steps to recovery
You may feel helpless, but there are solutions to your money problems.
Do either of these scenarios apply to you?
You are in the midst of a financial crisis.
You have too much debt and are having trouble making the payments. You fell behind and you feel like you cannot get caught up. You have stopped making payments and now the collectors are calling night and day.
You have gone through a financial crisis.
Maybe you were sued and your wages were garnished. Maybe your identity was stolen and it cost you thousands in dollars or lost wages as all of your spare time was used up tracking down receipts, making phone calls, filing police reports, writing letters and reviewing credit reports. You tried to keep up your mortgage payments, but you just could not keep up. You became overwhelmed. You lost track of dates and notices. Eventually, you lost your home to foreclosure. Now your credit is shot. You have no money in savings. You are trying to survive each day, wondering where the money will come from to make the next payment or buy groceries. You do not feel in control. You feel helpless. What is the solution to your money problems?
One solution may be bankruptcy. To find out if this is the right solution for your situation, see Michigan Legal Help’s website for information and seek legal counsel before making any decisions. However, even if you do file bankruptcy and receive a discharge of your debt, you may wonder: what now? A bankruptcy stays on your credit report for up to 10 years.
Another solution (and this applies to everyone who has experienced a money crisis, even bankruptcy) is to make a plan and live by it. It may sound simplistic and it may be difficult, but it may be just what you need to do. To start a plan, consider the following steps:
- If you have too much debt, add it all up. What is the largest debt? What is the smallest?
- Track all of your spending for 30 to 60 days. What do you spend money on? What is most important? Rent? Mortgage? Insurance? Food? Transportation? Clothing? Do not leave any stone unturned.
- How much income do you have? Your paycheck? Business income? Gifts? Assistance? Try to think of everything.
- How much of your income is set aside for or reduced by taxes? Insurance? Commit to setting aside some for yourself, even if it is a small amount. Consider setting aside some to give. You be in charge. Consider the income left over, your “spendable” income.
- Now that you know your spendable income, go back to step two and spend this income on the most important down to the least important. Do not forget to include an amount to pay off your debt. Some debt payments may be fixed like a mortgage or car payment. Others may only require a minimum amount—it is important that you pay more than the minimum in order to pay down these debts—making a separate plan of attack for your debt may be helpful. Check out powerpay.org for help with a plan.
- Make adjustments each month in order to make sure you are in balance (spendable income – money spent = 0).
Finally, keep going! Do not stop. If your income is not enough, you may need an extra job. If your expenses are too high, you may need to make some cuts. These sacrifices may be only temporary. As you pay down debt, you should be able to free up more spendable income. If you do these things, your credit may improve. If you do these things, you may gain control. If you need help, ask for help. Michigan State University Extension offers a variety of money management programs throughout the state of Michigan. For more information, check out MI Money Health.