How to deal with financial problems

[Seahorse]

We are certainly living in times of financial distress, so I hope to begin a list of practical things a person can do that doesn't cost them any money which will save them money and also how to handle ongoing credit problems.  Here we go:

1.  There is no "moral" obligation to repay your debts.  I know this will get get a heated response, bc we were taught differently, but here's why I say that.  As a lawyer, I can tell you when you incurred your debt, the bank on the other end assumed your were not going to repay it.  That's why they had you, for example, give a mortgage on the house.  The mortgage is drafted on the front end with the assumption you won't pay as expected.  Thus, this is all business.  It's a math problem.  You can either afford your note and mortgage or you can't.  If you can't, walk away.  Do not throw good money after bad.  Do not feel morally obligated to pay a bank.  The bank feels no moral obligation to keep you in.  Same is true for credit car companies.  There is no moral obligation to pay.  They will not have any moral inhibition about suing you. 

2.  Don't worry about your credit score.  You will end up paying lots of money to creditors to try to protect a credit score.  This is ass backwards.  If you have money saved and less debt, you will eventually get better credit.  You cannot get better credit by bailing water out of the Titanic.  Don't go down with the ship.  Get on a lifeboat as fast as possible and get away.  This means, quit paying anything towards debts you cannot afford.  It may mean filing bankruptcy.  When you stop paying, you do a couple of things.  You save money to pay bills that you must pay, like light bills, heating bills, gas, groceries etc.  Further, you may actually save a few dollars.  Do not keep your savings in a bank, as it can be garnished.  Keep it at home like your grandparents did.  Start paying for things with cash, not credit.  When you quit paying on debts you cannot afford, you start the statute of limitations for them to bring a suit.  If they fail to bring suit in the right amount of time, then they are forever barred from suing you.

3.  Quit fearing being sued.  Even if they get a judgment, it's probably unenforceable against you.  The old saying is, one can't get blood from a turnip.  If you are a financial turnip, don't worry about the suit.  The best they can do is try to collect the judgment by garnishing bank accounts or repossessing property.  If you don't have money in the bank, which you shouldn't if creditors are chasing you, then they can't garnish anything.  If you don't have a car or trailer etc for them to reposses, then they can't take anything from you.  Even if you do have a car, if you owe on it, they won't take it bc there will be no equity in it.

4.  File bankruptcy.  It's a math problem, not a moral problem.  Bankruptcy was designed to give people a fresh start, you may need one.

5.  Hang up the phone.  You don't have to listen to creditors rant and rave. 

6.  Get over the idea that you own things.  You don't own things, they own you.  Sell anything you don't use or DONT need.  You don't need two tvs.  You don't need old antique cars, clothes, books, whatever.  Sell everything for whatever you can get out of it and put the money away. 

7.  Again, get over the idea of having things, for they have you.  Cancel anything you don't need.  You don't need the newspaper, you don't need the t.v., you don't need the ultimate cable service, direct t.v. etc.  Simplify your life, your thoughts, you will feel better and save money.  Get rid of these things and get the thing you need, more time with yourself and your family.

8.  Do not eat out!  Your kids do not need to eat out.  They do need to eat with you and spend time with you. 

I'm sure there are a lot of practical ideas out there, so, please add in.  In the end, changing and adapting are really just changing your thought process.  You don't need anything to be happy.  You are unhappy bc you feel like you need something.  Babies laugh and smile bc they are held by another person.  You can too.

[ellen45]

 1.  Get rid of expensive toys.  Boats, travel trailers, motor homes, dirt bikes, ATVs, snowmobiles, jet skis are all an incredible money sink, particularly if they are financed.  Even if you are "underwater" in them, get rid of them and stop throwing good money after bad.

2.  Don't buy a car you can't afford to pay cash for.  If you have no other choice but to finance, buy the cheapest car that will function for you and finance it for the shortest possible time.   

3.  If you have two or three cars, consider dropping down to one.  If you have one, consider whether you really need one at all.   You would be surprised what can be done between mass transit, bicycle, and renting a vehicle a few times a month instead of buying.  Biggest dumb thing I see - buying some big bad truck because you need to haul a new couch or maybe a sheet of plywood once a year.  Pay to have the couch delivered or take advantage of the hourly rental trucks most big box home improvement stores like Lowes offer.

4.  Get rid of stuff.  Get rid of a LOT of stuff.  Keep tools and practical clothing, sturdy high quality furniture, camping equipment, and the like and get rid of doo-dads, multiple sets of china you never use, too many pairs of dressy shoes, and other clutter. 

5.  Once you have gotten rid of the clutter, consider downsizing your house.  Most people in America and Canada today live in ridiculous amounts of space.   Unless your liveliehood depends on entertaining clients in your home (which went out in the 1960's for most people) you don't need that freaking baronial dining room or the formal living room or face it, even the home theater.  Not to mention the three car garage.   Everything in your life from property taxes, insurance, to maintenance and utilities will get suddenly cheaper if you downsize your home.  Not to mention the money you spend keeping up with the other hamster-wheel consumers on your block of McMansions.   

6.  Consider walkability of your neighborhood. If you don't have to drive everywhere it is easier to spend much, much less on cars and gas and also to keep in shape without that expensive gym membership.   

[EarthAngel]

Some of you may already be familiar with the work of this gentleman, Bob Waldrop, who runs a Catholic Worker house in Oklahoma and is also the founder of the Oklahoma Food Cooperative.

http://www.bettertimesinfo.org/
http://www.oklahomafood.coop/

He has retrofitted an ordinary bungalow to make it super energy-efficient and has permacultured his yard.  The permaculture project is called "Gatewood Urban Homestead" and I believe he has made a DVD telling how he did it, which is for sale.  His ideas are things ordinary people can do.  People who are on food stamps or unemployment, even.

He has been peak oil aware for years.

[Katie]

There are two books I find helpful.  The first one was "Your Money or Your Life."  It helped me feel in control of my money and finances.  I never followed all the steps, but did the tracking and figuring out where every penny went.  I did this for a while and gave up everything unnecessary, or nearly.  I did get my CC's paid off that way.  I never invested in T-Bills or stocks or bonds, so that part wasn't useful.  But feeling like I knew what I was spending gave me a tremendous feeling of confidence instead of out of control worrying.

The other one is the series by Amy Dcyzyzn (sp) author of "The Tightwad Gazette."  It gave me the inspiration to live frugally and feel good about it.  I didn't follow everything in there either.  But it was nice to get some ideas from someone who had and her mindset.  I own a small inexpensive condo.  Not much, but I wouldn't have it without these two books.  OK, it's not paid for, so I don'[t own it and even then I wouldn't own it.  But it's a darn sight better than where I was living before.

[EarthAngel]

And then there is the venerable Dollar Stretcher website.  If you haven't visited it yet, you are in for a treat:  http://www.stretcher.com/index.cfm
The Topical Index with a drop-down box at the upper right of the screen gives access to ten years and more of weekly financial and savings advice.  This site is updated every Monday with more good personal finance stuff.  Today there is an article titled, "Declaring Bankruptcy, Is It As Simple As It Sounds?"

[tofu2u2]

Very infrormative Seahorse, thank you for starting this thread.

The only thing I can think of to add is to join food cooperatives like SHARE or Angel Food Ministries. They are a great way to save money on groceries.

[Zac]

3.  Quit fearing being sued.  Even if they get a judgment, it's probably unenforceable against you.  The old saying is, one can't get blood from a turnip.  If you are a financial turnip, don't worry about the suit.  The best they can do is try to collect the judgment by garnishing bank accounts or repossessing property.  If you don't have money in the bank, which you shouldn't if creditors are chasing you, then they can't garnish anything.  If you don't have a car or trailer etc for them to reposses, then they can't take anything from you.  Even if you do have a car, if you owe on it, they won't take it bc there will be no equity in it.

What do you do if you're not completely destitute, but have unsecured debts that you can't afford to pay?  In particular, what happens if you still have some equity in your house because you didn't pull out money along the way and you have a couple paid off cars that somewhat old (11 years and 7 years)?  What are steps that can be taken to protect those assets from creditors? 

Unfortunately, this is relevant to my own situation so I would appreciate any advice.  It's not a road I would have considered going down 10 or even 5 years ago.

I've settled 70% of my unsecured debt(combination of business and personal) for an average of 22% (or 24% of the balance when I stopped paying on them).  5% of the debt is on 5 year zero interest payment plans and the rest (about 25%) is in limbo.  One of the creditors sued last year while we were in settlement negotiations.  I filed an answer denying all their claims and filed a countersuit alleging fraud, breach of contract, and violations of federal credit laws.  Trial date is set for late this summer, but it's likely to be postponed.  They also filed a demurrer to try to get out of defending against my countersuit.  The hearing for that should be interesting.  I'm still hoping to settle the whole thing out of court though.  Any advice would certainly be appreciated. 

[Bill Hicks]

Sensible advice.  Especially that bit about the credit rating.  I recently ran my free once-a-year credit report, but they still make you pay to find out your actual credit score.

What a racket.  They hold that score over your head like a Sword of Damocles, yet you have to PAY them to find out what it is.  Needless to say, I declined.   

[Tinfoil Hattie]

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[Emeline]

That was a wonderful post Seahorse.

I wonder if you would clarify your views on repaying debt for me though please?  Yeah, I was gonna toss out the word "honour" but - when it comes to banks, credit card companies and those types of outfits, which as far as I can see are basically financial predators and dishonourable themselves, I think your advice regarding them is correct - but when you say "walk away from your debts" more or less, do you include say local businesses or people you might owe money to?  Because I can get with telling predatorial, oft-times global corporations to go jump, but NOT small businesses, family businesses, friends, relatives etc.  Surely THAT is still a matter of honour?

Some great thoughts from everyone else too.

I have this printed out and stuck to my fridge.  It's from the Depression (I believe), simple but apt advice:

 "Use it up, wear it out, make it do or do without".

I find when I mentally run everything through that little saying it's amazing how it can change my outlook and it's amazing what I can simply do without.  Actually most times I feel a lot better about not being stuck with more "stuff" than maybe getting something I (thought) I needed.

[EarthAngel]

You're welcome, Hattie!  I have a personal revulsion to the idea of bankruptcy, and like you, I would sacrifice a lot to pay money owed.  But just look at that poor farmer in New York who was so desperate because of money that he shot all his cows and then himself.  I live in farm country.  That kind of thing happened a lot in the 1980s, often disguised as a "hunting accident."  Nobody should be that desperate over money, it isn't right.  Plus our eyes have been opened pretty thoroughly to how little the bankster class cares about us or our economic realities.  I think that poor desperate farmer should have loaded up his cows and let them go on his banker's lawn!  That is, if he could even find out who owned his loan.  

[Tinfoil Hattie]

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[Hogan]

After houses, cars are the biggest money sink there is- period. As long as one is able to get back and forth to work, being car-free is quickest way to get out of debt and stay out of debt, plus avoid a huge amount of stress and headaches. Perhaps most people don't realize how much of a money-sink car ownership really is. Car 'ownership' is practically slavery in my opinion. The car 'owner' is unknowingly the slave, always trying to provide their master (car) with monthly payments, routine maintenance, repairs, insurance, gasoline, car washes, custom upgrades, parking fees, etc. Yes, the cars own their drivers through a never-ending demand of servitude.  Kind of like serfdom.  

[Tinfoil Hattie]

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[paland]

3.  Quit fearing being sued.  Even if they get a judgment, it's probably unenforceable against you.  The old saying is, one can't get blood from a turnip.  If you are a financial turnip, don't worry about the suit.  The best they can do is try to collect the judgment by garnishing bank accounts or repossessing property.  If you don't have money in the bank, which you shouldn't if creditors are chasing you, then they can't garnish anything.  If you don't have a car or trailer etc for them to reposses, then they can't take anything from you.  Even if you do have a car, if you owe on it, they won't take it bc there will be no equity in it.

What do you do if you're not completely destitute, but have unsecured debts that you can't afford to pay?  In particular, what happens if you still have some equity in your house because you didn't pull out money along the way and you have a couple paid off cars that somewhat old (11 years and 7 years)?  What are steps that can be taken to protect those assets from creditors? 

Unfortunately, this is relevant to my own situation so I would appreciate any advice.  It's not a road I would have considered going down 10 or even 5 years ago.

I've settled 70% of my unsecured debt(combination of business and personal) for an average of 22% (or 24% of the balance when I stopped paying on them).  5% of the debt is on 5 year zero interest payment plans and the rest (about 25%) is in limbo.  One of the creditors sued last year while we were in settlement negotiations.  I filed an answer denying all their claims and filed a countersuit alleging fraud, breach of contract, and violations of federal credit laws.  Trial date is set for late this summer, but it's likely to be postponed.  They also filed a demurrer to try to get out of defending against my countersuit.  The hearing for that should be interesting.  I'm still hoping to settle the whole thing out of court though.  Any advice would certainly be appreciated. 

Zac,  there is an exemption limit of many categories that they cant touch if they get a judgement on you.  For example, you have a $3300 exemption on just your automobile. And $1250 exemption on just your TV and another 1250 for your other stuff, including one for jewelry. It varies state to state but these are for California.  We didnt have to give up a single thing in our bankruptcy. And I think these apply to judgements as well as bankruptcies too but cant be sure.

If they are in a position where they can take some of your stuff, such as cars you still owe on, then in bankruptcy, it is hard for them to get any equity difference from you. They just have to be happy taiking the collateral and just walking away.

I think this post from Seahorse is an excellent read for anyone having financial difficulties and this should definitely be stickyed!!