Sara Parker, from Utah Central Credit Union points out some powerful financial tools and resources that we can use to overcome the worries.
The financial tool FinanceWorks is a free tool available on Online Accounts at Utah Central Credit Union. To see what it can do, you can view their online tutorial at this link:
1. Worry Number one: You might lose your home.
Modify or refinance your mortgage through the Making Home Affordable program, which the federal government just introduced in March 2009. Its purpose: help struggling homeowners stay in their homes by giving them affordable, sustainable mortgages.
• Loan modified so it will not exceed 31% of your gross income
• Mortgage can’t exceed $729,750
• The loan must have been taken out before January 1, 2009.
If you are interested in the Home Affordable Modification program, you should contact your loan servicer to see if they are participating. If so, they will tell you what documentation you need to submit to start the application process. Generally, this will include pay stubs and tax returns to document your income, verification of your assets, and an accounting of all of your debt.
Get a lower mortgage rate through the Home Affordable Refinance program. Its designed for homeowners whose loan to value ratio (loan balance compared to the market value of the home) is too high to be approved for a conventional mortgage refinance. The goal of this refinance program is to reduce interest rates to ensure the payments are affordable today and sustainable over the life of the loan.
• Your loan must be owned or securitized by Fannie Mae or Freddie Mac. (Not sure who owns your loan? You can find out if your loan is owned by Fannie Mae by visiting http://www.fanniemae.com/loanlookup or calling 1-800-7FANNIE. For Freddie Mac you can visit www.freddiemac.com/mymortgage or call 1-800-FREDDIE.)
• You must be current with your mortgage payments. (Current is defined as not having been more than thirty days late in the past twelve months.)
• The new mortgage must be affordable and an improvement over the old loan (e.g. lower interest rate, fixed-rate instead of adjustable).
• The new mortgage cannot exceed 105% of your home’s market value.
To participate in the refinance program, contact your lender or servicer to begin the application process.
2. Worry Number Two: Your income is reduced; our your financial obligations have increased
Step One. Take a look at your monthly expenses and prioritize them. Housing, food, transportation, and insurance should take top priority. Dining out, clothes, and entertainment may need to be sacrificed for the time being.
Step Two: Shop with a purpose and consider every purchase. Do you really need it, and if you do, can it wait a while, or can you get it for less somewhere else? This will also help you avoid relying on credit cards during this difficult period.
Step Three: If you have credit card payments, and you simply don’t have the money, contact your creditors immediately. You may be eligible for special programs that will keep your accounts in good standing. Waiting until you are behind will not only increase your balance because of hiked up interest rates and fees, but will damage your credit as well.
Step Four: Consider some of these emergency actions: Sell assets, from a garage sale to unloading securities (just beware capital gains taxes for next year). Obtain temporary employment elsewhere.
If you have children who work, ask them to contribute to the household budget. Make and sell things if you have a creative streak. Ask a friend or family member for a loan. Chances are they won’t charge any or much interest, but be careful – these sorts of arrangements have damaged many a relationship. Borrow from your retirement account or cash value life insurance plan. Be aware, though, that you are borrowing from an asset accumulated for a specific purpose. These come with their own set of problems if you can’t pay them back.
You may also want to consider:
• Credit card cash advances – There is often an origination fee to take out cash from a credit card, and interest not only begins to accumulate immediately, but is often higher than for purchases.
• Home equity loans or lines of credit – Borrowing from the equity in your home does have advantages – the interest is often tax deductible, and the money is readily available. However, if you can’t repay the loan, you put your home in danger of foreclosure.
3. Worry Number Three: You’re having a tough time paying your bills
• Talk to your creditors – Open up the lines of communication with your creditors. They will often provide plans that will help you with paying your debt. Tell them why you’re having problems and ask if you can work out a payment plan. Most creditors are willing to work with customers, especially if you have a good history with them. Don’t wait until your account has been turned over to a collection agency.
• Look into debt and bill consolidation – Free up money by reducing the interest rates you pay on your debt by consolidating it. The money saved on paying interest can be applied to other outstanding bills and is another way to help you pay bills.
• Always try to make a payment, no matter how small, to show your creditors that you’re making an attempt to pay.
• If you’re having trouble making or sticking to a budget, you may want to contact a credit counselor. To find a reputable counselor, talk to someone at your bank or local consumer protection agency. Many universities, as well as local housing authorities and the National Foundation for Credit Counseling, offer non-profit credit counseling programs.
• Reduce expenses – There are some simple, free steps you can take to lower your bills by reducing expenses, even medical expenses. Reducing expenses is one way to lessen your need for help with paying bills.
• Utility companies like Rocky Mountain Power and Questar have programs to help customers in tight money situations.