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Financial Distress: Temporary or Permanent

Financial distress can be caused by any number of factors.  Whether it’s a job loss, medical expenses or an emergency home repair an unexpected financial emergency is always incredibly stressful.  But the bills still need to be paid, the utilities need to stay on and you need to put food on the table, so how should you cope with a financial crisis?

Is The Financial Change Temporary Or Permanent?

First, determine what caused this financial emergency.  Before you can look at ways to resolve the situation, you need to understand the cause.  Is it a sudden loss of income, gradually mounting credit card debt, a natural disaster or a series of unexpected expenses that you can’t keep up with?  While each cause can lead to similar burdens, your financial plan will need to address the root of the problem to be effective in the long run. 

Though your house is only part of your financial picture, it is usually your largest debt, your largest monthly expense and may also be your largest asset.  If you have equity in your house it may be lost entirely in a foreclosure.  Getting your financial house in order prior to a foreclosure can save tens of thousands of dollars in home equity. 

When you talk to your lender about your mortgage, the first information they want to know is your current financial situation and whether the financial change is temporary or permanent.  Your lender has different solutions for different situations.  Allowing you a six month moratorium (non-payment) on your mortgage may be beneficial if you are temporarily laid off from work, but if it is a permanent lay-off and there is no other job in sight then you may need a permanent modification of your mortgage.


Prioritize Expenses

Not all expenses are created equal.  There are certain bills that need to be paid before others.  Food, shelter, utilities and transportation, if necessary to keep a job, are the most important and should be at the top of the list.  Hard choices have to be made and if paying the cable bill means there's not enough left to pay the monthly mortgage payment, then cable is an unaffordable extra.  Necessities must be paid first. You will find sample income, expense and asset forms as part of the Ohio Mortgage Help Workbook (pdf), beginning at page 13. 

Once you’ve established which bills are most important, you can begin looking for expenses to cut out of your budget.  While it's not much fun to cut out some of the things you’re used to, it might be necessary to keep from slipping into an even deeper financial hole.

Look for ways to cut back or eliminate things completely.  Think about those premium movie channels or satellite package.  Maybe you can get by without an expensive cell phone plan or maybe you can eliminate your land-line telephone completely.  If you regularly eat out, consider cutting back or eating at home entirely.  It doesn’t take much.  If you could find five different ways to save $20 each month, you’ve instantly freed up $100 that can go toward your important and necessary expenses.


Negotiate With Lenders and Creditors

If you’re having trouble with credit cards, utility bills, or your mortgage, the first thing you should do is call your lender or creditor.  It’s in their best interest to help you make your payments, even if it means a lower interest rate or extending the terms.  People too often wait until they get severely delinquent before contacting their lenders, and by then the options are limited and they aren’t as willing to work with you.  If you know that money is getting tight and you might need help, call them before you get behind.

Reaching out to your mortgage company can lead to a restructuring of your loan.  Calling your credit card company can result in a lower interest rate, and in some cases may even lead to a temporary delay in making payments.  Even when it comes to your utilities like electricity and gas, they usually offer programs to help keep the lights on and make payments affordable if you’re experiencing a hardship.  Don’t wait for the threatening letters to start coming in the mail before taking action.  There may also be government benefit programs available that you qualify for.  Your lender or creditor should be able to tell you about them.

It is critical to establish a financial plan and find solutions to credit and debt concerns which may include ways to increase income or decrease expenses.  Poor credit is fixable over time, but to fix it you must first know what is wrong with it and what you can do to improve it.  There are professionals who can help you create a realistic budget and help you negotiate with lenders and creditors.  A visit to a non-profit credit counseling agency to meet with a Certified Financial Counselor for a no-cost initial session will help you better understand the problem and how to go about fixing it.

 

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This website provides general legal information and not legal advice.  The law is complex and changes frequently. 
Before you apply any general legal information to a particular situation, consult an attorney. 
If you cannot afford an attorney call 1-866-Law-Ohio (1-866-529-6446) or visit OhioLegalServices.org for your closest legal aid office.

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