As many federal, state and local employees struggled with reduced or suspended wages, this blog will revisit previous suggestions for individuals who have been terminated or downsized. Any type of interruption of income is going to cause a problem with the household finances. The important thing is to take steps to minimize the impact by prioritizing your debt use, and debt payments.
1) Do not neglect your secured creditors! Unlike credit card companies, auto lenders and mortgage companies have collateral that they can repossess/foreclose to recover some or all of their money. As a result, they are not as aggressive about calling when payments are a few days late. Don’t let other creditors persuade you that they are more important than your house or auto lenders.
2) Restrict your use of higher interest credit cards. Having to make ends meet by using credit cards may be a necessity, especially with an absent or diminished paycheck. However, carefully consider which cards will be used. Try to use the cards with the lowest interest rate, and the most available credit. This will allow for better repayment terms, and make it less likely that you will go over the credit limit, triggering a higher interest rate.
3) Communicate with your spouse, and plan a budget. Decide which weekly/monthly activities are non-essential, and remove them from your budget. Consider less expensive ways to entertain your children.
4) Avoid using a home equity line of credit! Use credit cards to meet a temporary income shortfall instead. Because your house is not collateral for the credit cards, it will not be at risk if your income deficit persists for an extended amount of time.
5) Consider changing your income tax withholdings, especially if you traditionally receive a large refund. This will allow for more disposable income at the time when you need it the most.
6) Be pessimistic in planning your budget, and the potential for an extended furlough or shutdown. You can always re-subscribe to cable television or the premium channels later on.
7) Do not borrow against your 401(k) or other retirement plan. This will only reduce your disposable income going forward.
8) Don’t wait too long to consult with a bankruptcy attorney, if credit cards slide in to default, or lenders threaten repossession or foreclosure. Most bankruptcy attorneys offer a free consultation, so there will be no cost out of pocket to learn what relief may be available.
Unfortunately, the cycle of furloughs and shutdowns is probably going to reoccur on a regular basis, barring an immediate change in how the government collects and spends our tax dollars. Set aside as much money in savings as possible so that you will have an established reserve that will enable you to weather another employment interruption without having to resort to the use of credit.