Reader faces multitude of financial challenges

This was originally published on Monday,March 7 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: During the last six months, I have had to deal with some expensive life events such as getting my car repaired and health issues. I am starting to fall behind on my mortgage, credit card payments, and some of my regularly occurring bills. I am really starting to stress out about my financial troubles. What are some steps that I can do get myself ready for the rough road ahead?

A: There are many steps in addressing your situation, so I’ll cover them over the next few weeks. I am sorry to hear about your recent hardships. Life can sometimes throw us a curveball when we least expect it. On the upside you have taken one of the hardest steps, which is realizing you are heading into trouble and taking the necessary steps to prepare yourself. Evaluate how dire your situation is. Is it possible to work your way out of the situation within the next six months? Is your financial situation going to lead to some serious counter measures such as selling your home or bankruptcy? Let’s begin with a few questions to ask yourself that will help you evaluate your financial troubles:

Do you have any idea how much is in your bank account? Using your debit card freely without knowing how much is in your account can cause overdraft and returned check fees. Over time, these fees will compound and waste hundreds of dollars a year on unnecessary fees. You should review your account on a weekly basis. Know what your available balance is and determine how your money is spent.

Do you avoid opening your bills and bank statements? I am not referring to just letters but emails and phone calls as well. Avoiding communication with your creditors may mean you are swimming in debt. This could further jeopardize your financial situation. You need to explain your hardships to your creditors early. Most companies will want to work with you to help you pay off your debt or even offer some temporary relief.

Do you defend yourself making poor financial decisions? Whether it is tapping into your 401(k) or opening another line of credit to pay off another debt, do you find yourself reasoning that it is “just this one time?” Once you start heading down that slippery slope, it becomes very difficult to break the habit. Don’t become unaffected by poor financial decisions. Financial institutions are notorious for giving out pre-approved credit. Don’t avail of these unless it is absolutely necessary.

Do you ask friend/family members for money? You can put a huge burden on those you care about. You can’t learn to be financially secure if you constantly lean on those close to you to help you out of sticky situations. Sometimes to succeed you have to fail and learn from your mistakes.

Do you justify adding more debt? Do you find yourself using your credit card thinking you’re so far in debt that charging another $200 isn’t going to make a difference? The truth of the matter is that the smallest amount added to your debt can make a huge difference because the interest you pay on the debt adds up. Your total debt increases and so does the time it takes to pay it off.

Are you paying off one debt with another? Do you transfer money from one credit card to another? Or are you paying your car, home, or other loans with a credit card? This pattern makes it impossible to pay off your debt because you will increase the amount of money you owe. Many financial institutions will charge you fees for these practices. These fees can really add up, especially if it is a common practice.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

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