What should someone do if a life changing event happens and then no income.

[Anonymous]

The poster above recommends increasing credit limits & refinancing, potentially taking out extra loans, etc.

My perspective is directly opposite of this... not living within our means is what gets one into this situation in the first place: borrowing more money is NEVER the answer. You want to come out of the situation better, wiser, and at least as stable as you were before you started.. NOT enter the situation eternally banking on things "looking up" by the time it's over with, and coming out the end of a long, hard tunnel with an even bigger financial burden on your back.

Truth is, and we've learned this, bad situations last a hell of a lot longer than you expect them to, and happen a hell of a lot sooner than you expect them to. If you take our more loans, get CLIs, etc, you're not making your creditors help you, you're just helping them. Don't be a victim and don't be at their mercy. Be realistic, deal with the REAL money you have, and make your creditors work for you.

Most especially, if you or your SO has suddenly lost their employment, your ability to get CLIs, a personal loan, or refi is going to be greatly impacted, anyway! CCs & loans are just monopoly money. The greatest lesson you can learn from life crises is how little it really takes to run your house & take care of your family.

Gotta remember: Just like everything in life, credit card money is easy come, easy go. If all it takes to "fix" a crisis is a quick phone call, it will take longer for you to really come to terms with how serious and possibly, how permanent the situation is.

[Anonymous]

P.S. --

New personal loans & higher CLIs mean higher pmts to be made every month... so short-term you might have the cash you need, but within the next two or three months you'll be hemhorraging even MORE money (that you don't have!) each month to pay for the new balances...

[Anonymous]

I truly agree with this, but, it's another option and may work well for a certain type of person.  For instance, say you're the type of person who usually earns an astronomical income, lost your job, but could get another with the same type of income within the next few months, or so.  Charging up the credit cards a few months, then paying off when you can would be a lot better than paying all the cash out of your pockets, going broke, and not being able to pay anything (leading to future problems with getting any kind of credit).  Also, say you've got a $5k limit on each of two cards and your debts could cost you $9k the time you were out...if you get them both increased to $10 each, you can have a lower utilization and it would not impact the credit score as much.  I honestly think that with higher limits, we're better off either way.  No one says you exactly have to use them, but, if you need it, it's there.

I definitely agree that you have to be a well-disciplined person if you're going to go this route.

[haulingthescoreup]

This would be my take: live on the equivalent of one income, make sure that you have good medical insurance, and save every penny you can. Optimize your credit while things are going well: the highest total credit limits that you can get, preferably on bank cards (more flexible), and get a HELOC (if you have equity) and don't use it.

The MOMENT something bad hits, shift to using cards and slash expenses. Drop the paper, drop cable unless you need the Internet for work purposes, drop or suspend clubs, etc. Call your mortgage holder and car loan holder, and ask if you can suspend or drop payments for a limited period of time.

Hunker down, keep things on plastic, use savings to pay the minimum due plus $10. This will maximize your liquid cash. If you first go through your savings, and then move to plastic, you'll have a real struggle making your minimum payments.

[Anonymous]

As much as possible, plan for catastrophe in advance. Suze Orman emphasizes:

1. 8 months living expenses in an emergency savings account
2. (optionally) Extended disability insurance
3. Term life insurance
4. Other types of insurance that apply to your age, work status, assets, etc.

I agree with the above posters; if one lives within one's means, one should be able to allocate resources to the above items.

Message Edited by watchnerd on 04-27-2008 06:51 PM

[Anonymous]

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@fishbjc wrote:

We have insurance through dh's company that would pay for this type of emergency.   We also have access to a safety deposit box with almost 100k in it, so we would be fine.  Thanks MIL!

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I had to blink what I read this: you keep $100K in cash in a safety deposit box?

Aside from the fact that it's a shame it's not earning any interest, is that at all protected if the bank should burn down??

Just out of curiousity, why cash and not in an account?

[Anonymous]

No one can take cash in a box away. Can't sue you for it, can't take it in a divorce, ect... Does not exist. Perfect for an emergency since it should always be there. But still your loosing $5k in interest a year. 5 years = $25,000 lost in interest. Or $20k lost to inflation. There are other reasons of course why or why not. But inflation is the biggest killer of cash.