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 Dear
Debt Adviser,
My husband took a huge cut in pay and now our incoming is less than our outgoing. I am not able to work with the pregnancy and three other children. We have credit card debt out the wazoo. Please help me to know what to do?
-- Karen
 Dear
Karen,
Not to make light of your very serious predicament, but when
I first read your letter I was reminded of the line from the nursery rhyme, "There
was an old woman who lived in a shoe," she had lots of kids and, like you,
didn't know what to do. Fortunately, you have the Debt Adviser to help where she
did not!
The situation you describe is all too familiar. As
Americans, our expenses tend to rise to the level of our incomes. Another part
of our culture tells us that tomorrow will always be better than today, so using
credit to spend more than we currently earn is fine and dandy. The result
is too much debt and not enough savings. This overly optimistic view leaves
many woefully unprepared when the unexpected happens and our incomes are decreased.
Now that we've identified the problem, what is the solution? The
only way I know to turn around a situation where more is going out than is coming
in is to reverse the trend. So, the choices are to increase income or decrease
expenses -- simple to write but often a bit more difficult to put into action. Below
are some suggestions to help get out of and avoid the expenses rising to income
merry-go-round. - Start with a plan.
A spending
plan, that is. Until you know where every dollar is going, it will be very
difficult to control your spending. I'm not saying you are spending wildly. But
most people don't have a good idea of where their money is going. Small items
such as buying versus bringing a lunch to work, can add up fast. Make a list
of all your expenses and make some joint decisions about what gets curtailed.
If the kids are old enough, you can include them too. They love to be helpful.
- Look for
a new job or a second job. I know
what a pain this can be, but for a number of
reasons the sooner you do this the better. One
often overlooked item is that a prospective
employer may check a credit report before making
an offer. So I recommend that you check
your credit report for old or inaccurate
information and get it in good shape pronto.
Et tu? Yes, you. I know that kids can be a full-time
job and with another on the way it may seem
impossible, but depending on your skills and
experience, you may be able to find something
you can do from home part time. Telecommuting
is getting bigger, and a former employer may
be looking for someone just like you!
- Maximize income short term. Only
as a short-term strategy, put off your retirement contribution to help increase
your income. Also, look to increase your withholding deductions, especially if
you had a refund last year.
- Downsize.
Consider moving to a less expensive home or driving a less expensive car. This
will only work, of course, if you can sell your home or car for more than you
owe.
- Seek help. You may need
to sit down with a qualified credit counselor to determine the best solution for
your problem if you are overwhelmed or not sure how to proceed. You can find
one at www.aiccca.org or
www.debtadvice.org. Also,
you can advise the credit card companies of your situation and ask for a hardship
plan. These don't last forever -- maybe six months -- but they can help you
bridge the gap until you have a permanent solution in place.
Good
luck!
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