creditors

Taking Care of Your Household First

by mike on May 7, 2010

Many of you have unfortunately been subjected to nasty phone calls from your creditors.  You get behind with Visa or Sears and they start calling immediately.  They may start out relatively nice, but then they really pour on the heat.  They will do about anything to cause a reaction.  The reaction they ultimately want is for you to pay them.  Because the squeaky wheel gets the grease, they often do get paid.  Unfortunately, that often means somebody else will not get paid.  The mortgage or your insurance premiums are usually the ones that are left unpaid.  They don’t call and harass you so it is easy to think “we’ll get caught up with them later.”  That is not the way to handle the situation.  You must take care of basic necessities first.  Then, and only then, the credit cards can be paid.  Let’s take a look at what constitutes a basic necessity.

1.     Food. When all else fails, you have to eat.  You must set aside enough money to eat off of before you even think about paying Chase.  Now, this does not include eating out, cooking extravagant meals, or having the snack drawer stocked.  If you are in a crisis, very basic food is in order.  Determine the amount of money that is required, and take that money out of your account each week or month and pay cash at the grocery store for your food.

2.     Utilities. Electricity, gas, and water all need to be kept on.  They are basic necessities.  You will freeze without gas/electricity in the winter and we all need water for our household to function.  There are a couple of other “utilities” that need to be addressed.  In a crisis situation, cable or satellite TV do not count as necessities.  You may need to cancel those for a short period of time.  Phones are the other grey area.  Once again, in a crisis situation, basic phone service is in order.  If it is a matter of bankruptcy or home foreclosure versus having unlimited texting smartphones and an $80 per month landline, I would be reducing my phone service.

3.     Mortgage/Rent. Unfortunately, it is easy to get behind on your mortgage.  The reason is because they will not call you and start harassing you when you get behind.  You will normally just quietly get a letter in the mail a few months down the road saying that they are starting foreclosure.  They do not play games or mess around; you don’t pay, they take your house.  Shelter is a basic necessity of life and must be taken care of before any creditors are paid.

4.     Transportation.
Getting to and from work is essential because it is how we bring money in to the household.  Reasonable transportation is the key, however.  If you have a $2,500 a month income and have $600 in car payments, that is ridiculous.  You need to downsize cars and even consider one car for the household.  If you both work, then maybe you can figure out a way to share a ride to work.  In the case that only one of you works, then you can definitely make it with one vehicle.  If your car payment is within reason, you must pay your car payment and have money for gas to put in the vehicle.

5.     Insurance. I often have clients tell me they cannot afford insurance.  It may be life insurance, disability insurance, and even health insurance.  My response is often “you can’t afford not to have it”.  Very original, I know, but it’s true.  If you want to make a bad situation worse, try not having health insurance.  What happens when the $80,000 medical event comes along?  Do you think anyone ever plans on that happening?  Of course not, so how do you know it won’t happen five minutes after reading this?  The same is true for disability insurance.  What would happen if you couldn’t work for the next 25 years?  I hate to tell you, but government disability is not a quick path to getting your bills paid.  Also, dying (once again, you don’t know when that’s happening either) without life insurance can cause a financial disaster for the family you leave behind.  Stay current with these in order to prevent a bump in your financial road from becoming a total disaster.

6.     Clothing. This only applies in certain situations.  The reason is that most of us have enough clothes to last us awhile.  So, this does not mean we go on the $500 shopping spree because I wanted some cute new clothes.  It might mean buying Junior a new pair of pants he ripped a hole in because we have no others for him.  So, as with transportation, reasonable is the key word here.  Reasonable clothing that you must have (not want to have) is a necessity.

Having all of the above things covered will allow you to live for another day.  The creditors calling and harassing you is very stressful, I realize that.  However, having your car repossessed, your electricity shut off, or your home taken away is much more stressful.  So, summon the courage to tell the creditors no if it means you cannot pay any of the above things.  You can get to those later.

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