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financial disaster

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You should also include in your budget items that are unexpected such as car maintenance. Total all of your expenses. Next, total your monthly income. Now, subtract your expenses from your income.

If the amount is negative, it is imperative that you cut back your expenses in some areas. If the amount is positive, pat yourself on the back and put that extra amount in savings each month.

Vanessa was a single mom of two teenagers who kept overdrawing her checking account. Even though she made a good income, she found herself short of cash each month. She knew if she didn't get her finances organized, she was going to find herself in serious financial trouble.

Vanessa decided to make a monthly budget to get a better handle on her finances. Within a couple of months, she was not only able to make ends meet, but she could also begin saving money.

Another action to offset a financial crisis is to have a savings account. The ideal amount to have saved is three to six months of living expenses.

If you are married, and both you and your husband are working, the minimum amount for you to save is three months of living expenses. If you are single, or only one spouse is working, the amount you should have in reserve is six months of living expenses.

Don't get discouraged if you feel that these amounts seem too high or unreachable. Put any money you can into savings, even if it is a small amount. Did you know that saving only $167 a month equates to more than $2,000 a year?

Becoming debt free will also help you when facing a financial crisis. Make a list of all your debts. See where you can make extra payments and pay more than the minimum balances. Paying more than what is owed per month on your credit cards will greatly reduce the amount of interest and shorten the repayment term.

Crisis Management Sometimes, no matter what we do, we still find ourselves faced with a financial disaster. The worst thing you can do is panic and lose hope. Fear and panic will paralyze you from making a plan. The Bible says, "For God has not given us a spirit of fear, but of power and of love and of a sound mind" (2 Tim. 1:7, NKJV). A sound mind will help you stay focused to formulate a plan.

When a crisis hits, the following proactive steps will help you begin the process of turning your situation around:

1. Prioritize your bills. Some bills are essential, while other bills are considered nonessential or borderline. You must determine which bills fit into each of these three categories.

Essential bills are necessary for your survival and must be paid first. These include your mortgage or rent payments, utility bills and food. Child support and any loans such as automobiles, furniture and so forth that are secured or used as collateral to obtain the loans should be included with the essential bills.

Nonessential bills are debts in which no immediate consequences would occur if payments are late. These include unsecured debts such as credit and charge cards, medical bills and newspaper subscriptions.

One of the biggest mistakes I made was paying the creditors who harassed and intimidated me the most and not taking care of the essential bills. Once I grasped the fact that my credit was already ruined, and our family had to come first, I was able to make the right choices as to whom to pay first.

Also, I studied the Fair Debt Collection Practice Act (www.ftc.gov), which showed me what my rights were, and I realized many of these collection agencies were in fact breaking the law. Knowledge gives you power, especially when facing a tough financial situation.

Borderline bills fall into either essential or nonessential categories. You are the judge as to which category these bills should be assigned. When reviewing your borderline bills you must move them over to either the essential or nonessential category, based on the severity of the indebtedness.

If you are unable to pay all your creditors, communication is key. There can be severe consequences for not paying your essential bills. By communicating with your creditors you have a better chance of working out a repayment plan. Creditors have their own policies for delinquent accounts, and what can be worked out will depend on how far behind you are in making payments. Write a letter or call the creditor to explain your circumstances.

A couple, Mike and Brenda, were struggling to make ends meet after Brenda became ill and could not work. Immediately, they contacted their creditors to explain the situation. Most of their creditors, including their landlord, were willing to work out a payment plan.

2. Negotiate with your creditors. Most of your bills will have large penalty fees and interest tacked onto the balance, making it higher than the amount with which you started. Come up with a number that you can pay the creditor and make them an offer. For example, if your bill is $1,000 make an offer of $400 to settle the account within three days. Get it in writing before you pay it.

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