Tips for Getting Out of Financial Hardship
Unfortunately, with the recession in full effect, a lot of Americans are finding themselves in serious financial hardship.
This article is intended for individuals within the age range of 18-35 years with a dead end job, limited education (HS diploma only), and no special skills or trade who also have high consumer debt that they struggle to make minimum payments on.
The following assumptions are made about the intended users of this article: you have unsuccessfully tried to get a lower APR for your credit cards, and you have unsuccessfully tried to get a raise or a bonus at your current job.
Here is how you can finally get out of financial hardship:
- List all the debt you owe. Find out what payments are necessary to bring your accounts to a ‘current’ status – this is an account that is in good standing and not incurring late fees or other limit fees.
- Register for online access to all your accounts, and set up automatic monthly payments for at least the minimum amount.
- Change your due dates so that they coincide with your pay dates. For example, if you get paid on the 1st and the 15th, make half of your due dates fall around the 5th of the month and the other half around the 20th of the month.
- Use whatever cash you can get to bring your accounts current. Ways of acquiring immediate cash are listed below:
- Ask for a cash donation from family and friends. Be honest with your close friends and family members about your financial hardship, and then ask for any cash they are willing to spare. This is much better than asking for a loan.
- Use the money from all liquid investments you might have. Liquid investments include checking, savings, MMA or CD accounts. It does not make sense to keep money in these accounts, since the amount they yield is far less than the amount of interest your credits assess.
- Check for unclaimed money you may have at www.unclaimed.org
- Sell any underutilized assets you own, such as a second car, tools, or a boat.
- Temporarily put off donating money to your 401k plan – use this money to help bring your accounts current. Once you are current, continue the contributions to your 401k plan.
- Identify any time-barred debt. If you have unsecured debt that has been delinquent for a period of over 7 years, chances are the debt may have expired or is close to expiring. If this is the case, the creditor cannot legally collect on the debt because the statute of limitation has expired. You may still receive calls from collectors, but the key is to not acknowledge the debt or make a payment because this now resets the clock, giving lenders the legal right to sue you in small claims court.
- After making the minimum payment on all your credit cards, use half of any leftover money to pay off the credit card with the highest interest rate; use the remaining half to build an emergency fund. For example, let’s say your entire minimum payments amount to $2000.00 and you have some extra cash of $500.00: you should use $250.00 to pay the credit with the highest interest rate, and then put the remaining $250.00 in an emergency fund.
- Build an emergency fund of up to 2 months of living expenses, while paying off your debt. A good place to store an emergency fund is in an online savings account. Online saving accounts typically have higher interest rates when compared to traditional brick and mortar banks.
- Make partial payments as early as possible. Whenever you are unable to pay your credit card in full, try to make the partial payments before your due date. By doing this you will reduce your financial charges.
- Once your credit card debts are completely paid off, do NOT close the account. The account age makes up 15% of your credit score so closing an account will negatively impact your score
- Improve your discretionary income and use the additional income to pay down your debt. You can increase your discretionary income by increasing your income and lowering your expenses. The next section discusses this.
Once you have exhausted every possible avenue of obtaining immediate cash, the next step is to look for “realistic” ways to make extra money. Notice I use the term “realistic” because it is often mentioned that mystery shopping, paid surveys, and blogging are great part-time moneymakers. Now, I may be wrong here, but I personally do not know anybody who has made extra income from these activities. In fact, most of these advertised jobs turn out to be scams, and if you are one of the lucky people to make any income, the money you make is so small and inconsistent that it is definitely not worth your time. Below I have listed realistic ways to earn extra cash.
Realistic Ways to Make Extra Money
- Become a paid sports official. If you know the rules of sports such as basketball, football or soccer, there are many paid officiating jobs available.
- Donate plasma.
- If you are a renter, get a roommate.
- if you own a home, rent out a room.
- If you live in a tourist area and have a spare room, become a Bed and Breakfast host.
- Babysitting, house sitting, and pet sitting.
- Non-medical home care provider.
- Dog walking service.
- If you have a car, give people rides to the airport for a fee or start a courier service.
- Clean up foreclosed homes.
- If you have a truck, offer to haul stuff for a fee. If what you’re hauling is made of metal, you can sell to metal scrap collectors.
- Buy items from Goodwill, Salvation Army, and garage sales and sell them on eBay. Make sure you do your research to see which items sell well prior to making purchases.
- Collect items listed in the “free” section of Craigslist and sell on eBay or to metal scrap collectors, whichever is appropriate.
- Auto detailing.
- House cleaning.
- Rent out your garage space to boat owners or individuals in need of a parking space.
- Become an online tutor.
In addition, you can pursue these longer-term solutions:
- Pursue “in demand” professional certifications. This is a cheaper alternative to pursuing a college degree. The advantages of getting professional certifications are that they are relatively cheap and quick to acquire, and once you’ve completed a certification, it opens up doors to higher-paying jobs. When inquiring about which professional certification to pursue, do your background research to determine whether the certification is actually in demand.
- Claim all your eligible tax deductions and credits. In order to maximize your tax refund or minimize your tax liability, make sure you don’t overlook these common tax credits available to low income tax payers: earned income credit, credit for child and dependent care expenses, child tax credit and educational credits. Another opportunity for single parents with full custody of their child(ren) is to file as Head of Household and not as single.
© Copyright 2010, Ugonna Chukwu, CPA