Surviving Bankruptcy: Keeping Your Sanity, Part 1

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Find a bank with no service charges and a rewards program Does your bank charge a fee for each check beyond a certain number per month? Do you have service charges for using your debit card as a credit card? Will your bank pay you on a quarterly basis for normal purchases? Work with your banker to decrease fees and increase rewards.

If you are paying service fees to your bank this is money that could be used to purchase food or other necessities. This is also additional money that can be used to pay down existing debt. Even though you are in bankruptcy there are items that will remain past the end such as your house or other items that may not have been included in the bankruptcy itself. The best approach is to pay as much as possible over the stated payment. Since the payment amount includes interest, you can send extra money that will be applied only to the principle of the loan amount. If you owe $100,000 on a home and can manage to send just $200 extra per month; that will mean $2,400 taken off of the loan principle each year. Over ten years you have paid 24% of the principle amount in addition to the regular payments.

Do you receive cash back in exchange for mailing a certain amount in receipts to your bank? If not, you should ask about this. Some banks will offer this while others will not. Even if it is only $10 per quarter, that is an additional $40 per year in your pocket in exchange for minimal effort. Remember that this is not a credit card rewards program; it is tied to your checking account. You may also be able to receive rewards for booking trips through your bank site or online shopping linked to your debit card.

Know your pay dates and monthly income You may get paid weekly, bi-weekly, or even monthly. In all of these situations you will need a monthly budget to accompany the actual income that comes in during the days of that month. By creating this budget you will be able to know if the additional income attained due to three pay days during a month should be used to cover the upcoming months which may only have two pay dates.

Using this knowledge you can also stash away the additional income “for a rainy day.” We all have unplanned expenditures. Maybe the car needs a new transmission or the home air conditioning goes out in the middle of the summer. One budgeting plan will tell you to have a $1,000 emergency fund in the bank. This should be there and left untouched so that these emergencies can be covered without borrowing money from friends, relatives, or the dreaded “no credit check” places. Once this fund is utilized for something and drops below that minimum amount you should trim your discretionary spending to the bare minimum to replenish that fund. Also remember that this fund is not for vacations, “want” items, or even eating out. One approach of keeping the emergency fund untouchable was to put ten $100 bills in a glass frame with the words “break glass only in case of emergency” written on it.

Set aside money to pay the bills and budget the remainder for additional expenditures This approach can be used to ensure that all necessary bills are paid. We all have electricity bills and most of us have a phone bill that has to be paid. Rent and insurance are other necessary payments that should be included in your budget. There are two approaches that can be taken with your budget – You can either ensure that the income exceeds the budgeted amount or you can decrease the spending in order to bring the budget below the monthly income.

Have you had months where there seems to be “more month than money?” Sure, we have all experienced this. Budgeting your income is not a guarantee that this will never happen again, but it is an excellent source that can be used to assist when it happens. Since you are budgeting the income and are aware of where it is going, you know the proper way to react when you experience income shortfalls and have hopefully planned for it by putting additional income into the emergency fund previously mentioned.

It is possible that you have budgeted out all of your payments and they exceed the highest possible monthly income. You could take the extreme measure of taking on a part-time job to generate that extra necessary income. You could even have a yard sale and sell some of the “stuff” that you don’t really need. Since the additional job can provide additional stress on the situation and the yard sale will only provide temporary additional funds, you may want to consider decreasing the budget. This can be accomplished by switching to a lower cost cable or satellite plan. You may want to switch cell phone providers if that is an option. A minimal, but effective, plan is to install energy saving devices on major appliances.

Keep a running tally on the amount owed to each creditor Let’s make the assumption that you have now gotten your budget under control and are in the comfortable position of “more money than month.” In other words, you have extra income that should be used to your advantage. By knowing how much is owed to each creditor you can choose to attack either the highest interest or the lowest balance in order to have a real sense of victory.

You should not use this additional money for paying down bills or discretionary spending (eating out, movies, etc) until you have funded the previously mentioned emergency fund. You may want to settle for the $1,000 amount or maybe a full month or two of income in this fund. This should be hard to get to but easily accessed when absolutely necessary. If you put $5,000 in a CD at your bank it will earn some interest but it will not be easily accessible and may incur a penalty for early withdrawal. Since we cannot plan for emergencies this approach would not work very well. Put it in a savings account or a place in your home that is safe from burglary.

Approach “introductory” pricing with caution We have all seen satellite or cell phone companies that will give us an introductory price of $19.99 per month. Have you noticed the fine print on those ads? Maybe that price is good for three or six months. It may even be good for a year. The problem is that it requires signing at least a two year contract. This contract means that for at least a year you will be paying the amount shown in the small print. That monthly amount may be double, or even triple, the small figure shown in the advertising. It is also possible that your current company will participate in a price match in order to keep you as a customer after the contract has expired. Be sure to call and ask about this possibility before you switch providers.

Be sure to anticipate the upcoming bills and keep enough in your checking account to pay all bills on time By taking this approach you will be able to stay on top of your expenses. This requires the properly prepared budget mentioned above. You will need to live tightly by the figures shown in that monthly budget because it is more than a guide; you should consult the budget before making any spending decisions.

There are certain bills that cannot provide an accurately estimated monthly amount. Two of these are power and water. It is possible that your provider of these services will allow you to participate in an equal payment plan. Of course, this has a downside when the total usage exceeds the amount paid – a “balloon” payment at the end of the year. If properly monitored, this huge payment at the end of the year will be a known amount. It could also be avoided by paying extra on the service whenever possible.

Use the “rounding” technique to ensure that funds are always available for timely bill payment This is a rather elementary approach. Let’s say that you know that the house payment will be due for $355.10 each month (yes, I know that this is an extremely fictional number for a house payment). You enter this amount in your budget as $360. Over one year of living by this budget you have generated an additional $58.80 to be used for other debt-decreasing activities. You have also provided a cushion in case there would be the (hopefully rare) late payment fee. Of course, two of those will consume the entire monetary gain from rounding, but these should not happen if budgeting is properly followed.

This article is the first detailing approaches that can be taken to survive bankruptcy with your sanity and credit rating intact. The introductory article can be read on this blog.

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