Jay and Mary had been married five years. When they had their first child, Mary quit her job to be a stay-at-home mom. They felt confident that Jay's job as a sales representative would bring in enough money to provide for their family. They were living their dream—until Jay's company took a financial dive and began to downsize. Mary knew something was wrong when Jay arrived home early one day. He told her the news: He'd been laid off his job with only a two-month severance package.
The couple was devastated. They had no other income and little savings. They didn't have enough money to survive. Mary panicked, which caused Jay to reactive negatively. They became tense and argumentative. Jay felt as if he was letting down his family for not being able to provide financially for them.
After one especially tense discussion, Mary went into their bedroom to pray and felt God tell her she needed to encourage Jay, to let him know she had complete confidence in him. Then she recalled the Bible verse: "For God hath not given us the spirit of fear; but of power, and of love, and of a sound mind" (2 Timothy 1:7, KJV). She realized her panic wasn't helping the situation; it was making it worse.
So Mary approached Jay and apologized for her reaction to their financial situation. The tension dissipated and together they were able to form a game plan.
The first thing they decided to do was quit spending money. They realized it would be easy for them to go into a denial mode and continue spending, assuming Jay would find another job before the severance package ran out. Instead, they opted to spend only on their immediate needs such as diapers and food, and cut back on unnecessary expenditures such as going out to eat. They also agreed not to use their credit cards, knowing how easy it would be to run up the balance and deceive themselves into thinking they'd pay it off once Jay found another job.
Next, Jay and Mary made a list of what bills needed to be paid first and stuck to the list. They prioritized their bills into essential and nonessential categories. They paid the essential, or survival, bills first—their mortgage payments, utilities, and food. Then they made their car payments and paid the auto and medical insurance. With the remaining money, they concentrated on the nonessential bills—those that have no immediate consequences if paid late: credit cards, medical bills, newspaper and magazine subscriptions, life insurance, health club, and clothing.
They discovered by paying their survival bills first, they were able to stretch their money further.
The next step Jay and Mary took was to contact their creditors, including their mortgage and auto lenders, to update them on the situation. By communicating with their creditors, they discovered most were willing to work with them. They were able to establish a repayment plan they could afford, which allowed them to make partial payments and not be considered delinquent.
To ensure their creditors were on the same page as they were, Jay and Mary took notes of each conversation, listing the date and person with whom they spoke. Then they asked for their agreement terms to be sent to them in writing before they sent any money.
Some creditors, however, were ruthless and sent their name to collection agencies, who called them at all hours making threats. Finally, Jay and Mary contacted www.ftc.gov to get a copy of the Fair Debt Collection Practices Act. After reviewing their legal rights under this legislation, they realized many of these companies were violating the law, which prompted them to file a complaint with the Federal Trade Commission. The FTC investigated the complaint, discovered that those collection agencies were in violation, and the agencies were ordered to stop harassing Jay and Mary.
Finally, they joined their church's special financial planning program, as well as a debt management company, which helped them reduce their payments and lower their interest rates.
In the meantime, Jay continued aggressively seeking new employment. He was able to receive unemployment, and by the ninth month of being without work, Jay found a new job. Jay and Mary knew it was going to take time to catch up on their past due bills, but they were able to avoid bankruptcy.
Preparing for the Worst
Bill and Rhonda watched their friends Jay and Mary go through their financial devastation and started to wonder, Could that happen to us? They realized if it did, like Jay and Mary, they wouldn't decided to take proactive steps to prepare for a crisis.
The first thing they did was to talk to each other about the reality of their financial situation. They decided they wanted to have at least three to six months of living expenses set aside in case of an emergency. They also decided to open a special "emergencies only" savings account that would have at least $2,000 at all times. Because they didn't have an extra $2,000 sitting around anywhere, they had to get creative on how to come up with that money. They decided that when they each received their paychecks, they'd tithe first, then they'd "pay themselves" by putting 10 percent of their checks in that savings account. That would give them more than $2,000 in less than a year's time.
Next, like Jay and Mary, they also prioritized their bills. They opted to total their monthly income and expenses, which included keeping a journal of all their expenditures. They kept track of everything they spent—each trip to the atm, to restaurants, even to vending machines. They listed every penny for 30 days, then evaluated their journal. Once Bill and Rhonda took a good look at their financial situation, they realized they could be prepared for a financial crisis by simply changing their spending habits. They were shocked to see how much money they were wasting. Between the two of them, they were spending more than $150 a month for gourmet coffee and fast food. They found by cutting back in that area, they were able to begin saving more for their future.
Bill and Rhonda also looked at what they were spending and paying on their credit cards. They kept a record of their purchases and began to pay off the balance at the end of each month. Then they canceled all their credit cards except for the two with the lowest interest rates. They put one in a safe-deposit box and tucked away the other, so they wouldn't have easy access to them.
By taking proactive steps, Bill and Rhonda felt confident they were ready to weather whatever financial storms came their way.
Bill and Rhonda had a wake-up call witnessing what their friends were going through. And had Jay and Mary been better prepared for their financial crisis, they would have felt more confident that they'd be financially secure during the break in Jay's employment. Both couples learned that when things are going well with their finances, they need to plan ahead. Faith, hope, and a plan helped them stay focused. But they also learned that no matter how difficult the financial storm is, the circumstances will eventually improve and things will eventually get better.
Deborah McNaughton is a financial and credit expert, and author of The Get Out of Debt Kit (Dearborn). Check out her free video, A Gift for America: How to Survive a Financial Crisis at www.agiftforamerica.com or toll-free at 800-236-3560. Visit Deborah's website at www.financialvictory.com.
Prepping for a Crisis
Talk to each other. In most cases—and especially where finances are concerned—two heads are better than one. Find a time when you and your spouse can sit down, discuss your money, and set up a workable plan for emergencies.
Prioritize your bills. By determining which bills to pay in which order, you'll get in the habit of making sure your essentials are always paid first.
Be careful using credit. Sometimes a financial crisis will come not because of a layoff, but because you're overextended. Most people can afford to devote 10 percent of their net income (after taxes) to installment debt, not including mortgage or rent payments. If you pay out more than 15 percent, you need to cut back.
Establish an emergency fund. Open a savings account and start "paying yourself" 10 percent of each paycheck.
Weathering a Storm
Don't panic. When facing a financial crisis, stay calm. This will help you think logically and you'll avoid unnecessary arguments with your spouse.
Quit spending money. When faced with a financial challenge, it's easy to use your credit cards. But you may run up your balance to the credit limit and not be able to afford the payments, which will result in a poor credit rating—something you won't want during a crisis time.
Prioritize your bills. Pay essential, or survival, bills first: food, mortgage or rent, utilities. Next, pay car insurance, medical needs, child support, and any loans such as automobiles and furniture that are secured as collateral. Then pay the nonessential bills—those debts in which no immediate consequences occur if paid late: credit and charge cards, attorney, medical, and accounting bills, newspaper and magazine subscriptions, life insurance, childcare, gyms, or clothing.
Communicate with your creditors. If you can't pay your bills or can only pay a partial amount, your creditors may be able to help you to establish a repayment plan. Some lenders will allow you to defer one payment a year, meaning the payment for that particular month doesn't have to be made. The deferred payment is added to the end of the contract.
Take notes of any conversations with creditors, listing the date and person with whom you spoke. Whatever arrangement you make, get it in writing from the creditor before you send in money.
Know your rights. Many collection agencies are in violation of the Fair Debt Collection Practices Act. To get a copy of this legislation, visit www.ftc.gov. If you feel you've been violated, file a complaint with the Federal Trade Commission at their website.
Find outside help. Many churches and parachurch organizations run programs to help you navigate through the financial storm. A debt management company may also be able to help you reduce your payments, lower your interest rates, and pay off your debt faster than trying to do it yourself. Such companies can also negotiate with your creditors to bring your accounts current if they're past due.
Avoid bankruptcy. Bankruptcies should be your last resort. A bankruptcy will remain on your credit report for up to 10 years.
2002 by the author or Christianity Today/Marriage Partnership magazine. Click here for reprint information on Marriage Partnership.