Q & A Friday:
Q: I've gotten myself in a bit of a mess that I'm trying to get out of. No job loss or anything just bad decisions. Right now my mortgage is behind, my credit cards are over 60 days past due, and my car is a little over 30 days past due. I'm trying to create a plan on how to get out of this. What would you recommend I put most of my attention on realistically I can't do all of it at the same time?
A. Well, you made the first step, you recognized the issues and are in the decision making process of determining your next course of action. You didn't list income, other expenses or balances so unfortunately my answer will be kinda text bookish.
Secured debts are first. Basically, the items where something can be taken from you – car/home. Naturally there are exceptions, but you mentioned you are working and I'm assuming your income is about the same as when you got the home/car.
Next, the credit cards. If you default on your credit cards the only thing they can do is close the account, report the negative info to the credit bureaus (which I'm sure they have already done), assign/sell the debt to a collection agency, and/or win a suit for a judgment to collect (emphasis is on ‘win' it's not automatic unless you don't show up). Basically, your credit will be trashed but you'll still have a roof over your head and a vehicle to move about.
Now, since you are not that far behind I suggest the following:
List your monthly take home pay from all sources and subtract all of your expenses to see how much you have left over. See what can be cut until you are out of this, all unnecessary expenses gotta go – cable, gym, high cell phone expense, etc.
Look at the necessity expenses and see what can be adjusted: budget plan with utilities, decreasing insurance bills, etc
Next, call up your creditors – home, car, credit cards, and inquire about hardship programs – they all have them so don't fall for the ‘just pay up in full' line, call back get someone else, speak with retention dept or supervisor, be persistent. DON'T AGREE TO A PLAN THAT WILL NOT WORK FOR YOU! This is why it's important to write out a budget first (income – expenses). I suggest seeing if you can get a few payment from the car put to the rear of the loan, giving you 2mths off from paying the car note (you are already a mth behind so that will equal the full 3). Do the same with the house payment; if you can't get the entire note put to the rear, see if you can get 1/2 and just be responsible for paying the other 1/2 for 3-6mths. Call the credit card companies and do the exact same thing, month off, reduced payments, reduced interest, etc.
This should free up enough income to get out of things since you haven't let it get too out of hand. If not, find ways to generate additional money – focus groups, mystery shopping, over time, part time job, etc
#1 thing you HAVE TO DO – work on changing whatever poor money habit(s) that got you here in the first place. I used to be the queen of getting in and out of debt when I was single. Once cancer hit and baby was on the way I panicked and realized how stupid I was for not being more responsible. LET THIS BE YOUR LESSON. Don't wait for tragedy to strike and you're still doing the exact same thing that has you writing me now (and I know if you wrote me on a public forum you're panicking already).
Hope this helps; and good luck!
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