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4 Ways To Prepare For Emergencies

By //  by Khaleef Crumbley

Most of us will face some type of financial emergency at some point in our lives. Because of this fact, it is not our ability to avoid such emergencies that leads to financial success, but it is often our ability to recover from them that matters. Even though we don’t know when, where, or how an emergency will come, there are some practical things that we can do in order to help us withstand them.

Having a financial contingency plan is always important, even more so, now that the economy is more unstable than ever, it is a necessity for every household! Trying to keep your finances organized when trouble strikes is part of the key to surviving and thriving in these situations.

Here are 4 things that you can do now in order to prepare for financial hardship:

Plan What Expenses To Cut

I think this is the first and easiest step in preparing for financial hardship. Before the disaster even comes, you can evaluate your expenses and determine which ones you could easily cut if necessary.

Think about it: Do you really need to have 500 cable channels? A data plan for you, your spouse, and all the kids? A car for every adult in the home? A two-week long vacation every summer; and another one for your anniversary?

I’m sure we can go on and on about what unnecessary expenses you can cut, and everyone’s list would be different; but the main point is that you have to think of these things before the emergency hits. Discuss this with all the members of your household now and see what current expenses you all could do without.

Thinking through these things in advance will be much easier, since financial hardships have a tendency to stir up strong emotions and make it hard to concentrate on the task at hand. Avoid the stress, the arguments, and the finger-pointing by making the tough decisions now, before the emergency strikes!

Financial Crisis

What Items Can You Sell?

While you’re talking to your family about what expenses you can cut out of your budget during a financial crisis, you should also make a list of the things you can sell. A good financial contingency plan will take into account how much money can be gained from selling certain items.

Again, it will be much easier to make this plan now, rather than when you are all under the stress of a financial hardship! Decide what items you can do without, and do some research to see how much you could possibly get for them. Knowing that you can get $7,000 for you 2nd car may be all that you need to survive a financial emergency.

Even if you don’t have a spare car, you can look for other items that you can sell during tough times. For instance, do you have a fancy lawnmower? Sell the fancy one, and buy a simple, used mower. This may not be ideal, but neither is being in the middle of a financial disaster with a fancy lawnmower, yet not enough money to make another mortgage payment!

If the emergency lasts long enough, or the financial disaster is large enough, consider selling your home and renting. Of course this only works if your house can sell for more than you owe (not the case for many who purchased within the last 5 years)!

Look at everything that you own, and decide what you can sell now. This is another tough decision that should be made before the emergency comes.

Establish An Emergency Fund

This is probably the most common way that we prepare for financial emergencies (it’s actually in the name ;-)). It is easy to set up an automatic transfer or direct deposit to your savings account, and let the fund build up to whatever your goal is.

Having money set aside will be extremely important if you were to lose your job, or face some other financial difficulty. In our case, once we are out of debt, we will aim to have between 9 months and a year of living expenses in a high-yield savings account. But for now, our goal is to be able to cover at least two months.

Many people have gone deep into debt (I’m one of them) because they did not have significant savings to carry them through a difficult time. The purpose of an emergency fund is to remove the stress, fear, and even the need to borrow, when financial hardship comes. Every good financial contingency plan should involve a large emergency fund!

Pay Off Debt

Next to having an emergency fund set up, this is probably the most important step you can take in preparing for a financial emergency.

It is much easier to adjust your living expenses than it is to rearrange your debt payments. So when you are in a position where you need to free up a large amount of committed money, you won’t have over $500 in student loan repayments (I’m telling on myself again) to worry about!

This doesn’t just go for long-term debt like student loans, mortgages, and car notes, but you need to fervently attack any short-term debt – such as pay day loans, personal loans, and even store/shop financing on things such as furniture or car repairs

Being at the mercy of credit card companies, banks, and other loan servicing agencies, will only add to your stress and may cause you to make bad decisions during an emergency.

photo credit: freedigitalphotos.net

Filed Under: Personal Finance Tagged With: debt, Debt Management, Emergency Fund, Loans, Personal Finance, Saving Money, spending

4 Reasons Why I Will Not File For Bankruptcy

By //  by Khaleef Crumbley

Most of the people who I talk to have debt. Debt is one of the major reasons behind this country’s economic growth over the past 40 or 50 years. Many people use credit cards to buy gas, computers, clothing, and a host of other items. On top of that, many people will borrow money to buy furniture, education, cars, and houses at some point in their life. It has pretty much become a way of life in this country, and I am no different.

When counseling clients (or just speaking with friends & acquaintances) about their finances, I will sometimes mention that I am currently paying off over $100,000 in debt. Oftentimes, the topic of bankruptcy will come up. They want to know why someone who doesn’t own a home, or other expensive assets, wouldn’t simply file for bankruptcy and get a “fresh start”.

Why I Will Not File For Bankruptcy

There are four basic reasons that I have for choosing not to file for bankruptcy (for the record, my wife agrees with this decision, but I will just speak of myself in this article)…

Integrity (I Gave My Word)

The main reason why I won’t file for bankruptcy is because of my word. When I signed up for all of those loans, I not only received the money (or line of credit), but I also received an obligation to repay that money according to the terms of the various agreements!

All of those agreements have a few things in common. I asked (sometimes begged) for money, they said ‘yes’ as long as I agreed to pay the money back, I gave them my word by signing a contract, I gladly spent the money, and now I’ve been paying it back every since.

By signing those agreements I put my word and integrity on the line. If I try to get out of those obligations, I will fail to keep my word and end up dishonoring God in the process!

To me, that is the strongest argument against filing for bankruptcy. I knew exactly what I was getting into when I signed those agreements, and I have an obligation to pay them back. It really bothers me when I see people trying to weasel their way out of an arrangement which they not only agreed to, but from which they also greatly benefited! They enjoyed all of the benefits of the arrangement, but when it came time to “pay the piper”, they claim that they should not be held responsible to keep their word! I don’t want to be one of those people if I can help it.

Protection Against Making The Same Mistakes

I have known plenty of people who have either filed for bankruptcy or have taken out debt consolidation loans, and have gone right back to their old habits once their credit cards were cleared. It takes time for most people to change their horrible money habits, and taking the time to pay off debt in a more conventional manner can give one a chance to develop good financial practices.

By not taking the easy way out, I have been forced to develop and revise a budget, look for ways to reduce my expenses, try to develop other streams of income, and set guidelines for evaluating purchases. Had I been given a clean slate directly after feeling the full weight of my debt, I may not have acknowledged and changed my horrible financial habits, which got me into this mess in the first place (most of our debt is from student loans, but we made some bad decisions along the way as well).

This concept not only works with finances, but it also works with our health, and even our ability to learn. Going on a quick, fad diet may help us drop weight pretty quickly, but it is usually harder to maintain the weight loss once you return to a more normal way of life. Likewise, it is much more beneficial to study a subject over time in order to let the foundational topics sink into our thinking, and then build upon that. If we decide to cram a day or two before we need to use the information, it will be much harder to incorporate it into our normal thought process.

So, by forcing myself to take the hard way out, I not only can identify what I did wrong, but I get a chance to develop a system that will benefit my family for decades after we become debt free!

Satisfaction (I Love A Challenge)

As I think about it, I think that even if I wasn’t convinced of my obligation to repay the loans, I would still choose to pay them back. I love a challenge, and having to pay off over $100k in debt is definitely a challenge!

I want the satisfaction of being able to look back over time and seeing the amount of progress that I have made. This is the same reason why I would never have surgery to lose weight (besides the very serious health risks) – I want to get into shape through discipline and making wise choices!

I want to pay off debt by making sacrifices, exercising discipline, making wise choices, and honoring all of my commitments. Since it won’t be easy to pay off this much debt – especially with one income – I feel that it is more of a challenge than if I only owed $10k or so.

To Serve As An Example

I also feel that I can point to my own situation to be an example for others in my situation. I managed to pay off a huge chunk of debt when I was younger (and making a little more than minimum wage), and I can look to that experience to give me confidence that I can do it again.

I want others (especially some of my clients) to see that I was able to overcome a mountain of debt, and avoid filing for bankruptcy to do it, and have them be able to use a small part of my experience as motivation. If I am telling them not to take the easy way out, I want to be able to assure them that it is worth it!

For some reason we humans are better able to take advice from someone if they have been through what we are currently going through. So if I want to convince someone that bankruptcy isn’t the answer, I need to be able to show them that the alternatives work!

Is This The Only “Right” Decision?

Keep in mind that this article is more about expressing my views on the subject, rather than giving a generic, one-size-fits-all piece of financial advice. Every situation is different, but for the most part, bankruptcy is a quick fix with a huge downside.

Of course there are people who are so crippled by their debt, that bankruptcy seems to be the only option to stop them from being homeless. Each case is different, but please be sure to make this decision with a lot of prayer, reflection, and wise counsel.

I plan to take a more detailed look at the subject of bankruptcy, from a biblical point of view in the near future. You may be surprised by how much the bible has to say about this topic, even though the actual word is never used.

Reader Questions

  1. Have you even been in a situation where filing for bankruptcy seemed to be the best solution?
  2. If you refused to file, what was your reason?
  3. Have you ever declared bankruptcy? If so, was it a struggle to make that decision?
  4. Also, how long was it before you recovered financially?

photo courtesy of FreeDigitalPhotos.net

Filed Under: Debt Management, Personal Finance Tagged With: bankruptcy, bankruptcy in the united states, borrow money, buy gas, chapter 7, credit, Credit Cards, debt, decisions, economic growth, file, filing, insolvency law, reason, reasons, title 11, united states code

Why Debt Consolidation May Help You

By //  by guest

The following is a guest post about debt consolidation and home loans.

Many people try to tackle their debt once the idea of purchasing a home enters their mind. They then realize how a few bad financial decisions in the past, can have such a huge impact on their ability to get a mortgage.

A good home loan comparison along with a sensible debt repayment plan may free you from your current financial problems. Nothing is more stressful than being in debt and knowing that you have the pressure of paying for something which puts you at risk because of your lack of creditworthiness!

Before you even consider making another big purchase, you need to take care of your debt problems.

The question is where do you begin? It all starts by finding out and asking yourself: how much can I borrow? You must follow your debt reduction plan without exceptions.

Use Debt Consolidation With Caution

The additional benefit that you get by consolidating debt and being firm with your financial decisions is that you can live with less stress. The most important criteria of any debt consolidation plan is that the refinanced loan repayments will be lower than the existing loan.

Remember that this rule applies to all levels of debt. You have to make sure that the terms of your consolidation put you in a better place than you are now. Sometimes the fees that you pay are more than the money you stand to save by consolidating your debt.

Sometimes it may be better to simply go to your creditors and negotiate better terms. It can save you time and money, and also give you more control over your financial situation.

Debt Consolidation – Only After Your Spending Is Under Control

When you decide to get out of debt by using a consolidation loan, you have to first discipline yourself to control your spending.

It doesn’t make sense to free up all of this credit, if you are just going to go on future spending sprees. First, get your spending under control, and then try to attack your current debt. If not, you will end up with twice as much debt, and less resources with which to gain financial freedom.

You need to take care of your assets. In short, experts recommend people begin by consolidating small loans including car and or credit card loans.

photo by renjith krishnan

Filed Under: Debt Management Tagged With: consolidating debt, consolidation loans, consolidations, credit, debt, debt consolidation, debt consolidation plans, debt reduction plans, debt relief, debt repayment plan, federal student loan consolidation, finance, financial freedom, home loans, loan, refinancing

Why A Consolidation Loan May Be Worth Considering

By //  by Khaleef Crumbley

I know that many of you may think I’ve gone crazy with the title of this article – especially since I am trying to pay off debt myself – but I can assure you that I have not.

With interests rates being as low as they are right now, this may be a perfect opportunity to take out a loan in order to refinance debt or start up a business.

Don’t get me wrong, I still despise being in debt bondage, and I would still advise all of my clients, family, and friends to avoid debt whenever possible; but I also understand that taking out a loan isn’t always the worst option.

Here are a couple of situations for which getting consolidation loans might be the answer.

High Interest Credit Card Debt

Some people get into credit card debt because they decided to live above their means. For others, it may have been due to a few acts of desperation. Some may have even tried to take advantage of credit card benefits, and for some reason, were not able to pay off their debt.

No matter what the reason, if you are stuck with high-interest credit cards, it’s time to take action. First, call your bank(s) and try to negotiate a lower rate. If that doesn’t work, see if you have a card with a zero balance and a balance transfer offer. If your savings are higher than the transfer fee, do it!

If none of these options work, it may be best to take out a loan – be sure to take advantage of a personal loans comparison first from sites like http://www.comparethemarket.com/loans/ – and consolidate your credit card debt.

Student Loans

There are a growing number of people who are financing their higher education with the help of student loans. Unfortunately, many of those former students are then put into a difficult financial situation because of their high monthly student loan repayments.

Depending on whether you took out subsidized versus unsubsidized Stafford Loans (or some other instrument), you may end up owing a lot more than you realize once you’re out of the grace period.

Sometimes, the only option in these cases is to secure another loan, which will help you to lower your interest rate and/or extend the amount of time that you are given to pay back the loan – lowering your payments in the process.

Of course, your goal should always be to pay back any debt as quickly as possible, so don’t use your lower payments and a license to go wild with your spending!

Consolidation Loans For Your Car Note

Most people only think about refinancing their mortgage when overall interest rates in the economy drop. However, you can still save yourself thousands of dollars if you can get a new loan for your vehicle.

Don’t forget to compare any fees that you might have to pay with the amount of money you stand to save by refinancing.

The same exact things can be said about refinancing your mortgage – besides, people write about that so often that it gets boring! 😉

photo by Omar Omar

Reader Questions

  1. Have you ever had to take out consolidation loans for one or more of the reasons listed above?
  2. Do you think it’s a bad idea to try to fix a debt problem with more debt?

Filed Under: Loans Tagged With: borrow money, borrowing money, consolidation, consolidation loans, credit, credit card, credit card debt, debt, debt consolidation, finance, insolvency law, interest, loan, Loans, low interest rates, low rate, mortgage, Personal Finance, refinancing, refinancing debt, student loan, student loans

A Lawyer Is Forced To Become A Stripper To Make Ends Meet: How Far Would You Go?

By //  by Khaleef Crumbley

It’s been said that desperate times calls for desperate measures, and that can definitely been seen when we face financial problems. I’ve had between 15 and 20 jobs in my life – usually working 2 jobs at any given time. Since I dropped out of college (shhh…don’t tell anyone) at the age of 18, and didn’t have any trades under my belt, I was forced to take whatever jobs came along in order to pay the bills.

I’ve done door-to-door sales (twice), delivered auto parts in my own car (without being reimbursed up to the  standard mileage rate), and I’ve even scrubbed toilets (and other things) in a hotel overnight!

For much of my adult life I’ve been broke, stuck trying to pay off debt (even to the point of trying debt consolidation), and unable to do anything about it because of a lack of education and opportunity. However, I have never been forced into a job or position that has made me feel a lack of dignity.

A few days ago I came across a story on MSNBC about a lawyer who was forced to become a topless dancer in order to make ends meet. I was fascinated to find out how she ended up in this position, and what, if anything, she could have done to change things. Here is a part of her story:

When Carla graduated 10 years ago, she thought her law degree would be a permanent ticket to a high-paying job.  But instead of selling her mind, Carla is selling her body. After student loans, debt, a layoff and unemployment battered her bank account, she now finds herself in an almost unbelievable position – dancing in a topless bar.

“Did I ever think I’d be taking my top off for rent money? No. I was in my mid-30s and had never danced before,” said Carla, who asked that we use her stage name and withhold her identity and some personal details. “As a little girl, I never thought to myself, ‘I just want to grow up and be a stripper,’ or, ‘All I ever wanted to do in life is climb in the lap of sweaty stranger and take my top off.’

“But, with our economy the way it is, especially in smaller cities … you strip or you starve,” she said.

The first thing that I was reminded of by reading this story is that it is very unwise to judge people based on their external circumstances. I’m sure that when many people see her “working”, or hear of what she does for a living, they immediately get a number of [probably wrong] ideas about her. I know that I would be shocked to meet a exotic dancer with a law degree!

I am sure that many of us have been in desperate financial positions – or we may still be in them now. How far would you be willing to go if you lost your job and had no income? Before you answer that, consider how Carla went from respectable work to doing something that causes shame:

After graduation, she worked for nine years putting her degree to use, but she had entered the crowded legal profession at the wrong time. When she was laid off in 2009, she couldn’t find work.

“At first, I worked as a waitress, and a cashier in gas station,” she said.

As her prospects grew dim, she went back to school to earn a master’s degree, hoping to bolster her credentials. But her financial aid came in lower than expected, her credit was battered and she struggled to find part-time work in her new town to keep her afloat.

I’m sure that many of you can imagine going through this type of downward progression. She first got a couple of low-paying jobs, and then tried to go back to school. When that didn’t work out as she planned, she tried to find another low-paying job – but wasn’t able to find anything:

“I went around to see if could get a job as cocktail waitress, but there was not a single retail or waitress job.  No one was hiring, except for the topless places,” she said.  “It was an act of desperation.”

She started out serving drinks as a waitress, but moved quickly to dancing “because that’s where the money is, and that’s what I needed.”

This wasn’t someone who just took the “easy” way out; this is someone who tried many options before ending up where she is now. The article didn’t say if she tried other options than what is listed, such as becoming a part of the contingent workforce, applying for social welfare programs, or even living with friends. In order to choose a “profession” as demeaning and as looked down upon as stripping, I would hope that she looked into these other measures first.

I am not sure what her situation looked like before she was laid off, but here are a couple of things that you can do to help soften the blow if/when this happens to you.

How To Prepare For Financial Hardships

  • Have a Large Emergency Fund – Try to have between 9 months and a year of living expenses in a high-yield savings account.
  • Pay off Debt – It is much easier to adjust your living expenses than debt payments.
  • Have a Financial Contingency Plan – Whether it’s an old profession or side job, have a way to earn money that’s not connected to your current full time job. Also know what expenses you can easily cut and what services you can do without (it may be wise to just cut them now and build up your emergency fund, pay off debt, or save for retirement)!
  • Have a Support System – Know who you can count on in an emergency. You may need to consider taking loans from family or staying with loved ones; it’s good to know ahead of time, who you can rely upon.
  • Consider What You Can Sell – This doesn’t mean that you should start holding garage sales tomorrow, but it is important to have a discussion with your family members and decide what items can go if you fall upon hard times. It will be much easier to make this plan now, rather than when you are all under the stress of a financial hardship!

How Far Would You Go?

Looking at her situation made me wonder how far many of us would go in order to make ends meet. What would be the first steps you would take if you lost your job and ran through your savings?

Would you go back to school and live off of student loans until you graduate? Would you sell most of your possessions and live with a friend or family member?

Of course, I am not considering anything illegal or immoral, because that wouldn’t be appropriate for this discussion. However, I would like to hear from you on this issue.

What things would you do before you would be willing to swallow your pride and take a “demeaning” job, move back in with your parents/kids, or give up certain luxuries that you foolishly consider to be needs?

photo by Pat Shannahan for msnbc.com

The Article Was Featured In The Following Carnival(s):

The Best Of Money Carnival #122

Totally Money Blog Carnival Celebrity Roast Edition

Yakezie Carnival – Examples of Selflessly Helping Others Throughout History – September 25th, 2011 Edition

Filed Under: Career, Commentary Tagged With: carla, credit, dead-end jobs, debt, debt consolidation, desperation, financial, financial aid, financial contingency plan, financial positions, labor, lawyer, lawyers, mileage reimbursement, pay off debt, Personal Finance, provides, stripper, strippers, student loans

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