If you’re currently in “safe mode”, then this article is for you. This article continues the “Save Yourself Series” where we examine financial tactics that should be taken when in dire financial straits.
What exactly is safe mode?
Safe Mode describes anyone who has recently lost a job, running low on reserve funds (or none at all) with no real prospects for a job or alternate means of income. This means you’re in the process of hoarding the cash you have and spending it on only what is absolutely necessary to help you get to the next day. This includes food, shelter and anything that will help you secure an alternate means of income for you and/or your family.
With that being said, there’s no reason to scramble to feed your credits before you feed yourselves. Sure, if you can afford it, pay the minimums to keep the collection calls at bay or make payment arrangements, however, don’t do so at the risk of putting yourself on the street.
Your credit will recover and you will live to see another day no matter how many desperate calls you get from collection agencies. Start squirreling away some cash, brace for the worst and when you get back on your feet, then you can go back to paying down your debts.
Financial Survival Depends on You
Your banks aren’t worried about whether or not you will be able to buy your child formula or diapers this weekend. They aren’t concerned that you have to pay first for the roof over your head or else you’ll end up on some one’s couch or in a shelter some where. At the top of each bank sits a deep pocketed CEO who could care less about your individual circumstances and you shouldn’t be worried about them at a time when you can barely stand on your own financial feet.
Yes, I am well aware of the moral arguments present in this debate. You made a commitment and you should honor the commitment. Let me submit to you that when you signed on to pay for this debt you did so with good intentions given you situation at that time. Now as things have gotten tighter and you’re down to the last dime, unsure of how you will pay the rent or mortgage next month, it’s time to be selfish-you have my permission-trust me it’s OKAY.
Your Creditors Will Be OK, No Really, They Will
The big banks are some of the shadiest characters around today and give very little thought as to how they can screw you with new fees netting them billions on top of what they already make earned via deceptive practices. Some of this involves arbitrarily cutting benefits, raising fees and reducing limits as they scramble to survive the recession. They are also more than content to yank away your rights to fight them should a conflict arise.
So if you think for one minute that you can use your credit card in the midst of a financial crisis by running up the balance or paying the balance down to zero with your emergency fund, you should know that many banks are canceling accounts as soon as they reach a zero balance or have higher than normal utilization.
Banks Are Worried About Their Bottom Line – Tend To Yours
As mentioned above, banks are often willing to go through any number of shady practices to protect their bottom line. Do you remember the debacle with Bank of America and their proposed $5 monthly fee? This was in response to the new law which limited the debit card fees they were able to charge merchants so they happily passed on that loss to you which would have netted them billions. Meanwhile you’re concerned about sending them $150 to satisfy your credit card bill?
Shouldn’t I Honor My Moral Obligation To Pay Off This Debt?
Yes, you should, but not at the expense of your well-being. If paying your creditors means not eating or forgoing the roof over your head then no, they can wait. Remember, we are discussing financial decisions and the big banks and corporations have no problem asking you to go without in order to fill their pockets. Putting yourself ahead of the banks is being responsible being choosing to remain solvent, survive and ride this storm out.
What Should You Do?
- Call your creditors and explain your situation. Most companies have programs that allow you to pay less than the minimum.
- If you’re current on payments, sign up for the disability insurance through your credit card company. Most credit card companies have this type plan that will make payments for you should you become unemployed.
- Pay the minimums or as close as you can get to it.
- If paying the minimums isn’t possible then call ahead to inform your creditors that they should not expect a payment and see what they might be able to offer you.
Creditors can be merciless in their actions and they will do what they need to do in order to pad their bottom line. Pay the minimums if you can and start stashing away cash for a rainy day. Once you have a sufficiently established emergency fund, then start to whittle away at your debts. I understand the personal finance tenets around paying debt first to avoid paying more interest, however, you’re in safe mode-those rules don’t apply right now. You’ll need that emergency fund more than you need to pay less in interest fees when the rubber meets the road during unemployment.