Financial CPR: P is for Protect Yourself

This post is the second installment in the Financial CPR series. Financial CPR comprises a set of tools to use in the event of a sudden crisis, such as unforeseen unemployment. The following information should be seen as general education and is not intended to constitute individual financial advice.

Anticipate problems.
Look at your Cash Flow Plan and determine which bills you’re going to be late on or unable to pay.

Educate yourself.

  • Use your Cash Flow Plan as a guide to all your actions;
  • Understand your position as a consumer (How valuable is my business? How long have I been a customer? What rates are fair for other people in my circumstances?); 
  • Have a copy of the Fair Debt Collection Act;
  • Read your lending agreements;
  • Learn about your repayment options;
  • Know the terms of default and consequences of default.

Prioritize.
Put your bills in order of their importance in terms of consequences for non-payment. For example, not paying your mortgage could result in eventual foreclosure and losing your house. Not paying your credit card bill in full could damage your credit but will not otherwise threaten your security.

Know what you’re asking for.
Before you dial the phone, have a plan for what you want. Do you want to skip payments? Do you want to make interest-only payments for a period of time? (Remember to research what your repayment options are ahead of time.)

Contact your creditors.
Taking the initiative to contact your creditors will keep you in the driver’s seat. These companies are much more willing to work with you if you don’t make them chase you down after payments have already been missed.

Know what you can deliver.
Your credibility is absolutely priceless. Never promise something you know you can’t follow through on. It destroys your credit and may lead to harsh penalties and punitive action on the part of the lender or service provider. Even if you think what they’re offering you is a “good deal,” DO NOT accept it if you are not able to deliver. It is better to get off the phone without reaching an agreement than to agree to the impossible.

Negotiate.
Try to get the best deal for yourself. Remember, credit terms are not about your value as a person or how likeable you are. This is a business transaction, and you will only get as much as you’re willing to ask for. If you feel like the person you’re talking to is not willing to negotiate, ask to speak with someone else.

Go up the chain of command.
Oftentimes the people you get on the phone the first time are not authorized to make a deal. Ask to speak with a supervisor (several times if you need to) and keep going until you get to someone who has the authority to make a decision.

Don’t take it personally.
Creditors have been known to use every trick in the book to get you to make an emotional decision if it means they get their money. They will try to make you feel guilty for not being able to make your payment. They will try to manipulate you into prioritizing their payment over your other (more vital) obligations. Do not be fooled. Know your rights and know what you can realistically and reliably deliver.

Be accessible.
Even if you can’t make any payment at the present time, you still earn credibility points by staying in touch with your lenders and apprising them of your situation. This doesn’t mean you have to take the time to talk to every single collections agent who calls your house. Make appointments to return their calls, and then follow through.

Borrow judiciously. 
During a financial crisis there is always a temptation to hold on to your cash and to live on credit. Sometimes this is inevitable, but you always want to think carefully about how you go about it. Get the facts. Credit cards offer flexibility but high interest rates make revolving debt very expensive. Tapping into home equity can be lower cost but puts your property at risk. Retirement accounts are protected from judgment even during bankruptcy – don’t touch them if you can possibly avoid it!

Think about the long-term. 
Carrying debt should never be the long-term plan. There is too much inherent risk for debt to become unmanageable if anything interrupts your ability to pay. Try to minimize how much new debt you’re incurring during this time by keeping your expenses as low as possible.