Since the events of 2001, we've all been concerned with weathering the financial storm. Even when times are good and the economy is booming, a sudden setback-the death or illness of the family's primary financial provider, bankruptcy or layoff-can cause each of us to re-think our financial wellbeing. Although it is impossible to protect yourself and your family from unexpected financial setbacks, there are some steps you can take to help get you through the storm.
Review your spending priorities. Make sure you pay the most important items first-mortgage, utilities, and insurance. Then review the "niceties" in your budget-dining out, renting videos, and ordering premium cable channels. You might decide to give up some of these items temporarily or for a longer term.
Try to build a rainy-day fund into your savings account so that you will have resources available in the event of a financial crisis. According to the experts, you should try to build a rainy day fund equal to six months of living expenses. You can arrange for your bank to automatically transfer a certain amount of money each month from your checking account to your savings account.
Review your credit spending. Pay off your highest rate loans-usually your credit or department store charge cards-first. As you pay off these balances, consider keeping only one or two of the cards with the lowest interest rates. Additionally, try to pay more than the required minimum monthly payments and be sure to make your payments on time to avoid late fees and black marks on your credit report.
Think carefully before getting a cash advance on a credit card. Interest charges will incur immediately along with transfer fees.
When facing financial difficulty, consider refinancing your home mortgage. Although you need to consider loan origination fees and other costs, refinancing your mortgage at a significantly lower interest rate can save you a lot of money. You might also want to consider refinancing your auto loan.
Ask for help. If you think you have a serious financial problem, ask a family member or friend to suggest solutions or visit a credit counseling service. Be sure to use a reputable service and not a credit repair scam operation. Before signing an agreement, find out what the service involves, the fees you will pay, the qualifications of the credit counselors and how much input you will have in working out the details to improve your financial situation.
NEVER trust any service that promises to erase a bad credit history for a fee. A bad credit history can only be repaired by consistent on-time payments. Nobody can legally erase bad credit overnight.
Warning Signs of an Impending Financial Storm:- More than 20% of your monthly net income is going to pay back credit cards and loans (excluding mortgage).
- You're borrowing money to make payments on loans you already have.
- You're frequently at or near your limit on credit cards.
- You're paying only the minimum required on your credit cards.
- You're working a second job to pay for food, housing and other necessities.
You can't always plan for a financial storm, but you can have a plan in place to get to calmer waters.
Some of the above information comes from Community Bankers of WI