job – Beyond Dave

I Can’t Pay

If you are currently in the very uncomfortable position of not being able to pay all your bills on time, here’s how to get through this valley with the least amount of pain and scarring,

Do not allow the current situation to redefine who you are.

You are a person of integrity. Your word means something; you take care of your family; you honor your commitments. This doesn’t mean that you never stumble or lose your way. It does mean that when you do fall short of your own expectations you change course and re-commit.

Protect your relationships and rely on your faith during this rough spot.

Take Responsibility

If they hadn’t cut your bonus, eliminated your job, if housing prices hadn’t crashed, if you mother hadn’t gotten ill…. you would not be here. But it happened and you are – so start right here today with where you are. You made a promise you cannot keep and now you need to get to control over the situation.

Make a Realistic Plan

Winning the lotto, scoring a new job that pays twice what the old one does, or selling your car for twice what it’s worth, are examples of events that are not likely to happen.

You need to create a Crisis Spending Plan based on your actual income.

Develop your plan starting with basic food – no restaurants, no fast food, no steaks, no beer, just beans & rice, mac & cheese, PB&J; cut the budget to the bone.

Next you need to pay your utilities, water, electric, gas, not cable not internet. If the utilities are behind, catch them up before doing anything else.

Shelter is our next priority. Pay your rent or your mortgage.

Finally, secure your transportation. Make your car payment; get your bus pass; set your gas money aside.

Now that you have your four walls (food, utilities, shelter, and transportation) in place, you can start your battle against your debt.

Who Gets Paid?

Make a list of all of those you owe; how much you owe them and how far behind you are.

If you can’t make the minimum payments on all your debts, you may choose to pay them each their pro-rated share of the money you do have available.

List each debt. Divide each debt by the total debt to get the debts percentage of the total. Multiply each percent by amount of money you have available to pay debt. This will give you your new payment. Send a copy of your worksheet with each payment.

Like this:

Contact your Creditors

Some creditors will be much more willing to work with you if you can state your hardship case and your plan for overcoming it. Some won’t. Typically credit card companies, big banks and Sallie Mae don’t care about your problems and will treat you in whatever way they think is most likely to get them a payment. They may appear to be warm and understanding today and then become belligerent and abusive tomorrow.

If you owe money to local businesses or individuals, you may be able to negotiate a payment plan.

As much for yourself as for the creditor, always communicate honestly with the creditor. Calmly tell them why you haven’t paid, when you expect to send them some money and how much it will be. Send them a copy of your pro rata worksheet with any payment that is less than the minimum.

When Sears calls about the past due payment on your credit card, your side of the conversation could sound like this:

Yes, I’m aware that the payment is late. My hours have been cut at work and we are unable to pay all our bills. When I am paid next Friday, we will be sending you $21.06.

No matter what they say, you stay calm and repeat that’s all your able to do. Keep your four walls in place and do not put your family in jeopardy because of some collectors ranting. Never give them electronic access to your accounts.

Once you have a written plan in place – follow it.

Hope

The world is a better place today. OK, so maybe not the whole world; maybe just this little tiny piece and maybe it’s not really better, yet- but there is new hope.

A very generous and talented friend of mine started her first “real” job today as the teacher of a middle school special needs class. This is a very hard job. Don’t believe me? Just try and have a conversation with a middle school kid. It takes work.

Morgan has a gift and these kids, who have had a difficult and rocky row to hoe, will flock to her. She will show them that they can live up to the limited expectations that small-minded people have for them or they can overcome their difficulties and be much more.

As someone who has been tested, Morgan has a testimony to give. A single mom with two young children and no money, she has worked and struggled and made-do for years to get her degree. She could have quit and waited to be rescued, but she did not.

These kids, our community and our world will be a better place – because when it would have been so easy to quit, she pushed forward. She has earned the privilege of teaching perseverance to those who need it most.

Winners Quit

Recently I re-read Seth Godin’s book, the dip. In this little book, Godin writes mostly to business people about knowing when to quit a project. When he says, “Winners quit fast, quit often, and quit without guilt” it flies in the face of a lot of what we’ve been taught. Godin advises that winners quit when their path leads to a dead end – but to persevere when they are just in a dip.

This concept of winners quitting, is one that also works in realm of personal finance.

The key of course is knowing when to quit and when to stick.

For some situations, this determination is easy. If your income situation has changed for the worse, whether due to job loss, hours cut or a reduction in bonus, I have some no-fail advice for you: QUIT! Quit your old lifestyle – Today! Do not eat up savings or take on debt to maintain a lifestyle you can no longer afford.

Given the doom and gloom pessimistic economic news, it’s surprising that so many people can be so overly optimistic in their personal life. High earners are particularly susceptible to this problem. I get this and I’m also optimistic; but let’s practice a little planning for the worst. Do not let stuff drag you under; unload it and when you land that great new job you can always buy more.

For other situations, the determination is much harder. Here in Florida in early 2011, 46% of homeowners with mortgages have negative equity. Wow! That needs to be said again. Almost half of the people in Florida who owe money on their home, owe more than they could sell the home for.

If you are one of these families, how long do you stick?

People often need to move when they graduate, retire, marry, divorce, get a new job, have children, children move away, or for a myriad of other reasons. At one time as many as 20% of all Americans moved in any given year. Today, the poor housing and poor job markets have been a factor in greatly reducing that number.

Faced with either a legitimate need to relocate or the inability to realistically make the payments, many people choose to stick in their negative equity home way past the time they should have quit.

While I would not advise anyone to default on their mortgage just because the home value has dropped, I also would not advise someone to indefinitely postpone a needed move just because their home is underwater. (The “How you quit a negative equity home” is very important, but not the subject of this post).

In much the same manner as Godin advises business people to figure out if the path they are on is a dip, a cliff, or a cul-de-sec; if you feel stuck in a financial situation you need to calmly and strategically do the same.

Decide in advance when to quit.

The underwater homeowner who can no longer reasonably pay the mortgage may decide to commit “x” number of dollars of their savings toward keeping the mortgage paid while trying to land a better job or short sale the house. When the money is spent, it’s time to quit. Deciding in advance takes the emotion out of decision day and helps prevent quitting in a panic.

Will quitting now allow you to win later?

If a better job, life or family situation is on the other side of quitting, you may need to quit sooner than later. Carefully weigh the cost of sticking – waiting on the market to recover vs. quitting and starting new in a better place. The unknowns of the marketplace make this calculation very difficult but we do know that while you can make more money you cannot make more time.

Recognize the cliff

Be brutally honest with yourself. Put your what-if analysis on paper. Quantify it. Review it with someone you trust. If the path you are on leads to a financial cliff, its way past time to quit.

Remember, there is no prize for not quitting. People will not cheer your dogged determination if the end result is failure.