A woman talking on a cell phone

How to Handle a Money Crisis

You know what to do in a medical emergency, but do you know what to do when faced with a big fat financial crisis?

Dear Mary: After 10 years of marriage and tons of unwise decisions, my husband handed the finances to me to handle. I have never done this before. We have mountains of bills and $900 in the bank. I don’t know where to start. Please help me. I feel like I am drowning. Gladys

A woman talking on a cell phone

Dear Gladys: First you need to separate facts from feelings. There will be a time later to address emotional issues and how to develop financial intimacy in your marriage. But for now pack up your feelings and put them on a shelf. Develop a mindset that you’ve been called in to perform a financial rescue for a complete stranger.

Take a deep breath and write down all of your bills. Include the “bills” for basic food, gasoline and necessary medications, if any, to survive until your next payday. Divide these bills into two lists: Essential and nonessential. An essential expense is a serious obligation that if not paid could produce severe, even life-threatening consequences. Follow this rule to figure out which bills should get paid first:

Do not make payments on nonessential debts or expenses when you have not paid essential ones—even if your nonessential creditors are breathing down your neck. 

Now prioritize your bills as follows so that the most essential come first. This is the order in which you should allocate the $900 you have on hand. 

Essential Expenses/Debts

1. Family necessities. This means basic food, necessary medication and health insurance.

2. Rent or mortgage. Being late with a mortgage payment or rent could mean eviction or foreclosure.

3. Utilities. Pay the minimum required to keep essential utility services.

4. Car payments. If a car is necessary to keep a job, the payment is essential.

5. Child support. Paying child support is absolutely essential or you go to jail.

6. Other secured loans. If getting the item repossessed would be devastating, pay this bill next. Otherwise, consider it nonessential.

7. Unpaid taxes. If the IRS is about to take your paycheck, bank account, house or other property, you need to set up a repayment plan immediately.

Nonessential Expenses/Debts

These are bills you can let slide for a while because the effects of not paying will not be devastating. You still owe the money, you’ll pay late fees and you will damage your credit score. But in the big picture a blemished credit report is easier to live with than being thrown out of your home or having your car repossessed.

8. Student loans.

9. Credit cards.

10. Personal loans.

11. Medical, legal and accounting bills.

12. Other unsecured debts.

Survival mode

It’s time for your family to move into survival mode. This means absolutely no spending at all for anything that isn’t critically essential.

Determine that you will live on the food you have in the house already, supplementing with milk and produce as necessary. Start planning for ways you can raise cash—a garage sale, working extra hours, selling larger items on eBay and so on.

Please read my book, Debt-Proof Living as soon as you can (check your local library). Soon you will know how to manage a paycheck. Join us at DebtProofLiving.com. There you will find support, encouragement and friendship with people who understand because they are or have been where you are now. Knowing you are not alone will give you the hope you need to keep going.

I know things look bleak right now. And that will change quickly. Just don’t let your emotions run the show. Make decisions based on principles, not feelings.

Remember tough times never last but tough people do.

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2 replies
  1. JuanitaS says:

    I wish you the best Gladys. I appreciate today’s topic. It helps to motivate me to analyze my own budget and look where “wants” are blurring the lines with “needs” before an emergency or short of money month happens. Gladys – While you are getting your emergency budget together, it can feel like you are cutting out a lot of things especially anything that seems fun so don’t forget the LIBRARY. Even when I was a little girl, I have always been a big library user – free use of books, audiobooks, newspapers, magazine, movies or DVDs of all sorts, music, classes sometimes (my favorite library offers free Zumba class once a week), free Internet, free use of e-books and e-magazines. You can get research materials about budgeting, gardening (grow some of your own food if possible to save money if possible), cookbooks for slow cookers which will help save money with buying food because you use cheaper unprocessed/whole ingredients and save on electricity (not using stove or oven). Dry your laundry outside if possible. If you have children, get their ideas for free fun, let them plan a meal from the cookbooks (check for children’s cookbooks at the library – recipes are often basic with lost cost ingredients). I think when you try to make it feel like a challenge to meet instead catastrophe then it will help with the mental and emotional stress – for you and your whole family. Sometimes when I have very little money, I plan a theme meal using my slow cookers that would match with a movie or audiobook from the library (decorations provided from school supplies on hand or other items already in the house).Sorry my comment was so wordy.
    BTW: Mary – Thank you for the carpet topic the other day – I will be using that info.

    Reply
  2. skye says:

    And start cutting out monthly bills you dont need. Cable, gym membership, subscriptions, extra phone services. If you have a landline and can ditch it and use basiccell phone service, great. If you have highcar payments, look hard at whether getting rid of the most expensive vehicle and getting a cheap usedvehicle in its place might make sense for you.

    Reply

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