Business circle

How to deal with a personal financial crisis

Austin Pryor

In assessing the credit health of consumers, a major business publication stated earlier this year: "…consumers have run up the highest debt in…history, both in absolute terms and relative to income.... We believe most (consumers) will be able to meet their debt service payments. However, a minority of households whose debts are high (that) will be in more difficulty, especially if the economy falters as interest rates rise."

You don't want to be in that vulnerable minority during a time of rising rates. If the economy "falters,” are you ready? How a recession would affect you depends to a large extent on where you live, the industry you work in, and above all, your financial preparedness. Even people with high-paying jobs can be vulnerable. As the Bible says, “The rich rule over the poor, and the borrower is servant to the lender” (Proverbs 22:7).

If you see potential trouble ahead, don't panic. There are steps you can take to reduce your vulnerability if you start immediately. Here are 10 suggestions:

  1. Absolutely, positively, do not increase your present level of consumer debt. No more credit cards, no matter what. Stop buying non-essentials. Cut back on optional lifestyle spending. Quit carrying your ATM card with you. Place a priority on your mortgage payment and various insurance premiums.
  2. Run toward your creditors, not away from them. Contact each one, explaining your budget situation and how much you have available. Be realistic. Show them a list of your other creditors, and how you are dividing your available money among them. Once you've made a promise to them, honor it at all cost.
  3. Think twice before putting your house up for sale. The cost of real estate commissions, moving, and replacement housing often adds up to more than you're presently paying. Instead, contact your mortgage lender. They will generally work with people who display a responsible attitude. Ask for partial payments for a time, or to extend the loan to permanently lower the monthly payment.
  4. Protect your career. Raise your on-the-job performance to new heights, and consider adding new skills. Cutbacks are more likely to affect the "average" worker. This is probably not the time to switch jobs; you don't want to be one of a company’s last hired employees if the economy worsens.
  5. Raise cash by selectively selling assets. Every house is filled with items that are no longer used but in good condition. Advertise in "bargain mart"-type classified newspapers or online. Bicycles, boats, electronic and computer items sell quickly if priced right. If you have investments to sell, first sell the ones in which you have a loss. You can often use losses to offset your other income and reduce income tax obligations.
  6. Borrow from your life insurance. Policies that build cash values allow you to borrow up to the "surrender value." If you don't pay it back (or die while the loan is still unpaid), the amount of insurance paid to your beneficiary will be reduced by the amount of the loan.
  7. Borrow from the college fund. This is a decision for the whole family. If college is years away, you can work on replenishing the fund after your debt crisis is over. If college is coming up soon, your child might qualify for financial aid and government loans.
  8. To conserve cash, temporarily stop funding your retirement plans. While many company plans allow you to borrow against your vested benefit, we would advise against it. This is truly a "last resort" measure.
  9. Once a bill is paid off, don't reduce your debt-retirement budget. Take the money that you were using on that bill and put it toward your remaining highest interest rate debt.
  10. Avoid bankruptcy. This should not be considered an option. It is a matter of personal and Christian integrity to pay your debts in full. The stigma of bankruptcy stays with you a long time and could affect future applications for employment and housing for years.

Reflection/Discussion Questions

  1. Why do you think people find themselves deeply in debt? Who is to blame, do you think, for this growing and seemingly pervasive dilemma?
  2. Have you ever personally experienced a financial crisis? If so, what steps did you take to resolve it? If you are currently facing substantial indebtedness, have you considered seeking advice or other forms of assistance to ease your problem?
  3. Which of the 10 suggested steps in this “Monday Manna” do you think seems most helpful? Are there any ideas that you had never considered before?
  4. What difference could it mean, do you believe, if people were consider the warning from Proverbs that “the borrower is servant to the lender” before they accumulated large credit obligations?

NOTE: If you have a Bible and would like to read more about this topic, consider the following passages: Exodus 20:17; Proverbs 13:11, 22:26-27, 28:20, 30:8-9; Luke 16:1-13