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No cash, no credit, just bills.
Help!
Dear Debt Adviser,
I recently read your article about not using payday
loans. While the wisdom was good, it was certainly not helpful to
someone already in need of financial help with bad credit. You listed
all the ways to avoid needing a payday loan. But what do you recommend
when a person has an unexpected debt and has no reserves to pay for
it? Not everyone has a credit card and can take out a cash advance.
You were not much help to someone with no credit. Any more ideas for
someone who has bad or no credit and no credit cards (and no hope
of getting one soon)? While I agree that the payday loans are outrageous
in interest, what other choices are there for someone with an unexpected
bill to pay?
Debbie
Dear Debbie,
Thanks ... I think! Being told that you have wisdom but aren't
very helpful, all in the same breath, is certainly thought provoking.
To get to your real question, "What are the choices for a person
with no or bad credit and an unexpected bill?" let's look at
your options.
The situation you describe leaves few options; none
of them easy. So here goes:
The issue is the unexpected bill. You have no cash,
credit and no credit card. You need money now or you need money
soon. The wider the gap between when you need it and when you get
it, the greater the pain and expense.
I would first recommend that you request, if at all
possible, to pay the expense in monthly installments. It is much
easier to come up with an extra $50 per month than $500 at one time.
Most businesses and individuals are willing to accept a monthly
payment to be assured of payment. If they say no, consider paying
a regular monthly payment anyway. Money is rarely returned. If you
feel you must pay the expense in full or can't even afford the monthly
payment, you need to increase your income, reduce your expenses
or obtain a loan.
Income
To get money now, sell something of value such as jewelry,
a computer, collectibles, snowmobile, an antique or unused tools.
Have a garage sale or try to put in overtime at work. Another option
is a part-time job. Seasonal sales positions or service jobs such
as lawn maintenance or house cleaning are some you might consider.
Expenses
Spend less -- starting now! That will free up cash the next
time you are paid. Food is a large portion of most families' budgets
and offers the most flexibility when it comes to reducing expenses.
Cut out all eating out, clip coupons for items you use and stay
away from high-ticket items such as prepackaged foods and expensive
cuts of meat. Entertainment expenses can be cut altogether in the
short term. Get creative and look for free entertainment options.
Rather than going to the movies, attend a free play at your community
theater. Visit your community parks and hike and bike trails. Go
to the library and get free books and videos.
Longer-term options for decreasing expenses include
decreasing utility costs by lowering or raising you thermostat,
washing only full loads of clothes and dishes and turning out lights
in rooms not in use. Cancel any club memberships, magazine subscriptions
and other extras. See Bankrate's Frugal
U. section for more ideas.
Loans
Now, about a loan. For a large unexpected expense, check with
your bank or credit union regarding a personal loan. My guess is
they will turn you down, but try anyway. With bad credit you may
pay a higher interest rate, but you will have a more-affordable
monthly payment and avoid the worries and frustrations of paying
back a payday
loan with much higher interest rates.
Borrow from a family member or friend. Be sure to
put in writing the details of how you will repay the loan. Pay back
the loan as quickly as possible and keep the lines of communication
open. Loaning money can be a damaging thing for a relationship when
the parties involved do not communicate if problems arise in paying
back the loan.
Finally, there is always the option of doing nothing.
If there is no money you can earn, no expenses you can cut and no
money to borrow (other than a payday loan), you can just explain
the situation to your creditor, pay what you can, do your best to
save and take more lumps on your credit. If you are taken to court
for a judgment, you will have something to illustrate your efforts
to repay and why you should be given a lower payment than the creditor
is demanding.
The long-term solution is to build up a savings cushion
of three to six months of living expenses so that unexpected expenses
do not cause immediate financial hardship. So get busy and save
something, no matter how little, and make rebuilding your credit
over the next two years a priority.
It's a tough world out there when you have no positive
cash flow and bad credit, too. Sometimes the only way out is to
take responsibility for your situation, whether it is your
fault, and just work through it as best you can. I am basically
an optimist and I believe that if you work at it, you will find
a solution. Good luck.
The Debt Adviser, Steve Bucci,
is the president of Consumer Credit Counseling Service of Southern
New England. Visit CCCS
for additional debt
advice or click
here to ask a debt question.
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