Hardships may affect cash today, but they can be overcome
Hardships can affect consumer’s cash today. The recession was hard on consumers and many had to drastically change their ways of life to manage. On top of the financial situation, some consumers suffered other hardships to make matters even worse. For anyone who had difficulties personally and financially, it was a challenge.
For example, Michelle Plumbley, of New Castle, New Jersey, is a homeowner with three children. Four months ago, her husband died of cancer and she was notified that she would no longer be receiving the $2,100 in Social Security benefits to live. Her credit card debt is $18, 000 and comes along with a hefty interest rate. She is debating options and weighing pros and cons for her future.
The solution for a homemaker after tragedy
Plumbley has some options:
- She can contact a debt consolidator and pay $285 a month for 4 years
- She can borrow on her retirement to pay off her debt
- She can sell her home, which she owns in-full, and pay off all debts
- She can downsize to a smaller home, and use the left over money to pay debt
Although there are many options, each one comes with an interesting set of after-effects. For example, she could sell her home and buy a new one, but the leftover funds may just cover her credit card payoff. In addition, the market isn’t at its best position right now to start selling a property, so it may be on the market for a while before the solution comes to fruition.
The expert’s opinion
Steve Bucci, financial expert for Bankrate.com, said that Plumbley has critical decisions to make. First of all, losing $2,100 in monthly income is a drastic change for anyone to manage. The good news for her, though, is that her house is paid for. That could be what saves her from a disastrous outcome. The biggest issue she has to deal with is her credit card debt. Bucci advises her to submit a “letter of hardship” to her credit lending company. Many lenders are more sensitive with cash today because they know the state of people’s finances. To ask for a letter of hardship, consumers need to talk to a manager at their credit lending company and be prepared with a payment plan. Some lenders offer six-month to year-long breaks in payments for qualifying hardship-suffering customers.
The second thing for Plumbley to look into is how to increase her income, or decrease her expenses. To pay off her debt, she needs an additional $400 a month. That averages out to about $13 a day. Bucci suggests all people who owe considerable debt should break it down to manageable amounts and then think strategically about how to handle it.
Thirdly, Plumbley also was considering selling her home and downsizing to a smaller one. Rather than that, Bucci instructs her to look into a home equity line of credit, or HELOC. A HELOC will have a low interest rate and a longer lifespan. That will allow her to pay back the money much easier and at a much lower rate than what her credit card company is currently offering. The one caution with this option, though, is that consumers need to understand that they are exchanging unsecured debt for secured debt with the move. If payments aren’t made on time and the loan defaults, homeowners could potentially lose their property.
Finally, debt consolidation is another possible solution Plumbley could use. Bucci instructs that debt consolidation can help consumers, but only if they are careful what company they use. A legitimate nonprofit credit counseling agency can help a difficult financial situation. The problem is that there are so many unscrupulous companies preying on consumers in financial turmoil. Bucci says, “If a company promises anything that seems outrageous, it probably is…it’s impossible to lift a credit score one-hundred points in a few months.”
Managing debt after a hardship
Managing cash today is difficult, and adding a serious hardship to the mix can mean even more stress. For anyone who finds themselves in this position, the best thing to do is to take stock of what the issue is, what the options are, and then weigh each one out objectively. As Bucci added, “It is very important for those in trouble to remain financially strong and a safe harbor for dependents until they become independent, and perhaps can help you in return.”