When there isn’t enough money coming in to pay all your bills, it’s all about making choices.
You need a plan. A plan you decide on, in advance.
One you stick to, even in the face of phone calls and threatening letters.
Pay first things first
For most families, housing and transportation are the most important expenses they have:
- get evicted or foreclosed, and you are homeless;
- have your car repossessed and you can’t get to work
Pay these expenses first.
Out with the unnecessary
Look for expenses you can cut out entirely.
- Can you scale back your cell phone and cable service?
- Raise the deductible on your car insurance or forego collision insurance altogether on an older car?
- Cut out whole life insurance or convert it to term insurance?
Debts you can put off
Homeowners may find that they can forego paying property taxes through a crisis. In California, property taxes have to be five years overdue before the county can hold a tax sale of the property.
Find out what the timeline is where you live.
You can reduce your income tax withholding in the short run if you are truly in survival mode. Shorting your withholding is only a short term fix as the government has powerful ways to collect back taxes and the statutes of limitations on taxes are long.
But if you usually get a tax refund, you’re overpaying your taxes on a monthly basis. Reduce your withholding so that you are paying in no more than you will actually owe.
If your home has fallen in value, you may be able to stop paying on the junior mortgage with less risk of a foreclosure.
Safeguard your funds
Don’t keep your bank accounts at a bank or credit union where you owe the institution money on a loan or credit card.
The legal principle of “offset” or “set off” allows the bank to take money from your account to apply to what you owe the bank.
Your bank or credit union is not your friend in these situations. Don’t keep any more money with a bank you owe money to than you are prepared to lose.
Revisit automatic payments
Look at any payments made by deduction from your paycheck, or automatic debit from your bank account. Consider whether those deductions are paying a bill that is critical.
If you can do without that service during a financial crisis, stop the deduction and pay, if you can, directly.
Get a copy of Elizabeth Warren’s book on personal finances All Your Worth.
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