Cash crisis? First figure out exactly where you stand
BY TERRY SAVAGE Sun-Times Columnist Oct 21, 2010
Updated: May 3, 2013 12:13PM
I have recently received so many questions related to
dealing with a personal financial crisis that I thought I would answer a
few at once, giving you my best ideas for prioritizing your finances
when you lose your job.
In general, the most important thing is to immediately figure out your situation, and all the possible alternatives if your lack of income continues more than a few months.
I realize that's asking a lot of you -- to be rational and realistic
while in the midst of an emotional crisis. But good counseling and an
open, honest relationship with adult family members and, to a certain
extent, your children, will be a big help in dealing with your
You are not alone. But hope will not "save" you from even the unjust
consequences of this economic recession. You WILL come out on the "other
side" -- perhaps with fewer possessions, but with a chance to start
over. And it is never too late.
Q. Where do I go for help I can trust?
A. The ONLY place I recommend for honest, helpful advice is
Consumer Credit Counseling Services. You can reach the nearest local
office by calling (800) 388-2227. Then set up a meeting in person or
over the phone. They'll go through your entire financial picture -- so
be prepared to explain not only your outstanding bills, but your
ordinary monthly spending. Basically, they'll direct you to one of three
*They can show you how to rearrange your budget, if possible,
cutting spending and prioritizing payments. Simply meeting with CCCS to
get this advice does not go on your credit report.
*They can enroll you in a debt-repayment program, where they
negotiate with your creditors to lower your interest rates and
penalties. This is NOT debt negotiation to cut your balances. But
creditors do agree to accept a lower monthly payment, which the bureau
will distribute from the one monthly check you send to the agency. This
agreement is recorded on your credit report.
*They can tell you if your situation is hopeless and direct you to a competent bankruptcy attorney.
Your local CCCS agency may also be able to work with you if your only
issue is making your mortgage payments. They understand the red tape
around the current mortgage modification programs.
Q. Should I pay my credit card bills first -- because I
will always need them -- or my mortgage? I will probably lose my house
anyway when they get around to foreclosing since I lost my job and have
few prospects for a new one anytime soon.
A. This is the most difficult dilemma of all. If at all
possible, my advice is to save your home -- even if it is worth less
than you currently owe. You'll always be able to get another credit
card, by putting some future savings in a bank and drawing against them
with a debit card. Or you can choose to keep one card current, and try
to avoid listing it if you must go through bankruptcy.
Q. Do I need a lawyer to try to prevent foreclosure, now that some banks have temporarily stopped foreclosing?
A. In most cases, an attorney can only delay -- not eliminate
-- the prospects of foreclosure. When I first wrote about this topic
eight months ago, it seemed to make sense to pay small legal fees
to attorneys who would challenge the documentation on your mortgage,
thus delaying the process of foreclosure -- and possibly giving you a
chance to get another job and become current on your loan.
These lawyers did such a good job of challenging the system that the
entire process temporarily came to a halt. Now lenders and services have
regrouped and will press forward. So it hardly seems worthwhile to pay
for a lawyer since now banks won't proceed without proper documentation.
The real effort should be spent on trying to figure out if there is
any way you can amass enough money to make an offer to the bank to pay a
certain amount of cash and have them redo your loan. At this point the
banks are overloaded with bank-owned real estate. So they might be open
to an offer.
Q. Will ordinary people ever be able to buy a home again?
A. The answer is a definite YES -- the housing market will
rebound. But individuals and families may not qualify for the same dream
home they once briefly owned.
This is a historic crisis for America -- one that will test the
strength of our democracy and our legal system. But most of all, it will
test the character of our people. That's the Savage Truth.
Terry Savage is a registered investment adviser.HOW YOU CAN PICK TERRY'S BRAIN
In this column, I'll be responding to your most frequently asked
questions on a regular basis. Of course, you always can submit
individual questions on my Sun-Times blog reached on the home page at www.TerrySavage.com.