Just in case you have been hiding under a rock, we are in a Recession with falling home values, an increasing foreclosure rate and the highest level of consumer credit card debt ever. There is no doubt that economic circumstances will get worse before they get better. For most of us, we need to really look at our financial circumstances and evaluate what cash we have and what we owe. If you live a more frugal life and are already closely watching how you spend money and feel that you know what monthly payments you can actually afford, you probably will get through the Recession without changing much of what you do. However, if you are like me (Oops), you may have more debt and more mortgage than you really can afford. Well… what do we do now?
The best thing to do first is to sit down and be honest. Ask yourself four key questions:
1) What do I really need to have?
2) What can I afford?
3) What can I sell to build up my cash?
4) How can I reduce my debt?
I did just this and I did not like many of the answers. But in these economic times it can be financial suicide to delay taking actions that you know need to be done.
Once I asked myself these key questions, it was pretty clear that I had too much mortgage and credit card debt and I was spending my money freely.
The mortgage debt built up from an investment property that was bought when the market was good (of course, not long before real estate crashed). I was getting poor rents and the negative cash flow was a real burden that I had carried for 15 months. Well, I contacted my mortgage company in July this year and told them my problem. I told them that I could not afford the payments and I voluntarily put the house into foreclosure. I hope to actually turn the ownership of the house over to lender; a process called Voluntary Deed in Lieu of Mortgage because this has less of an impact on my credit score. Time will tell if the lender will take the Deed, but for now I have stopped making payments and the house will be off my back. Yes, I will lose the down payment on the house. However, the house was worth less than half of its $345,000 original purchase price and I was not going to get the down payment back anytime soon (or more likely – ever). Worse yet, the monthly cost was going to ruin me if I waited too long before making my move with the lender.
Then in September I tackled the credit card debt. I have a lot of credit cards and I have accumulated a lot of debt. Fortunately I had not maxed out my cards. I had a good margin of available credit still on the cards. Of course, I was told by my mortgage lender that I would have a lower credit rating because of the pending foreclosure. This means that my available credit would likely be reduced in the future. I reviewed all of my credit cards and found that I could do a balance transfer from my high interest rate cards to my lower interest rate cards. This consolidation of my credit card debt will save me a lot of interest cost even if the overall balance is the same.
Of course, no matter how much I consolidate my debt, the reality is that I need to pay down the credit card balances and stop spending money wastefully. I started paying down dept faster since I no longer was paying for the mortgage, but I can tell that paying my debt down to zero will not happen very quickly if I do not stop my spending.
Spending is the hardest issue for me because I live an active life and enjoy friends and family (well, yes…maybe a little too much). Regardless, in October I found a website, shop.indigoislandpress.com that features several great eBooks that provide beneficial suggestions about saving cash and building cash reserves today. I read The Money Crisis Manual a couple of times already and though I still like spending money, I have already started (though still grudgingly) applying the savings ideas suggested in the book. One thing I did right away, was sell or give away furniture and stuff that I had accumulated at a storage facility. I not only made money on the sales, but I will save money by not paying the monthly storage fee. Also, I followed the suggestion in the book about having a bank account for my emergency cash. Yes, the cash from selling the junk in my storage facility went into the emergency cash account.
I am still in the beginning stages of my cash savings plan, but I am already putting money into my cash reserve bank account. With a combination of new thinking about how I spend money and the cash savings ideas from the books I have read, I can say that for the first time in over a year that I feel really confident that I can get through the Recession.
To build your confidence, it is important to get serious about it right now and take action. I can assure you that it is not easy, but taking control now will avoid the nasty surprise at the end.
Bio: Tyler Evans is a reformed stock broker that now trades daily for her own benefit. She enjoys writing articles that deal with financial/investment concepts and about some of life’s challenges. She will be coming out with a book on stock investment for those who know little or nothing about stocks and related investments. Her book will be sold through Indigo Island Press (shop.indigoislandpress.com). If you want to receive an early notice of the books availability, register at shop.indigoislandpress.com.
