GOOD DEBT

By in Debt | 13 comments

In the movie, Invictus, Nelson Mandella (Morgan Freeman) reminded himself that no matter what his external circumstances were, no one could steal his soul. When difficult time arise, do whatever you can to continue moving forward.

MAIN TOPIC: The Long Term Unemployed

Caught a clip on a morning TV show last week about a group of long-term unemployed folks. Most of these individuals had been searching upwards of  one to two years with no luck.

Reasons for lack of job search success included:

  • Employer can hire someone younger and in better health for less.
  • 50 applicants for one job.
  • Employer combining several jobs into one and requires rare combination of skill sets.
  • Job is being shipped overseas or phased out.
  • Plant closed and along with it, 100’s of jobs.
  • Skills are no longer in demand.

It tore my heart out to see, in the flesh, a group of motivated, hard working individuals tirelessly searching for work with no upcoming possibilities. One man, who had been a Human Resources Director for decades, declared he was giving up the search for a job in his field and beginning a job at a “big box” store the following week.

The commentator asked for a show of hands indicating who had PhD’s, Masters degrees, and College Degrees. Most of the participants were included in one of the educationed groups. Next request, a show of hands for those “Who had tapped their retirement fund?” Again, a large majority raised their hands.

Granted,  some individuals made poor financial choices in the past; living beyond their means, buying homes with no money down or interest only loans, trying to keep up with the Jone’s. Realistically, today’s unemployment numbers have not been seen in decades.

PRACTICAL APPLICATION: Necessary Debt

In Cnn.money – Money 101 Series, there is and article listing Three Examples of Good Debt; home, school, and your chariot. Obviously, very few can buy a home or car without debt. Usually, loans to pay for college will return a value greater than the cost of the loans. This is not revolutionary information and IS NOT WHAT THIS ARTICLE IS ABOUT!

When hard times hit, there is sometimes no alternative to debt.

But, before you start putting all of your living expenses on your credit card, make a decision to cut down on ALL OF YOUR CURRENT EXPENSES.

Before you reach for the credit cards to cover living expenses, take these steps:

  • Reduce housing costs. Sell your home, move to an apartment, take in a boarder or all three.
  • Cut auto costs. Sell expensive car and buy used, cheaper car. Transition from two to one cars. Take public transportation.
  • Cut food costs to the bone: Beans, rice, peanut butter, bananas, potatoes, bake from scratch etc.
  • Family fun & entertainment: Games, talking, $1 videos, library resources, etc.
  • Look for part time and temporary as well as full-time work!

DEBT Strategy:

Sometimes debt is inevitable. The worst does happen. Read how a middle class family deals with hard times at the Saved Quarter.

  • Consider asking family members for help. Offer to barter services in exchange for cash.
  • Contact your credit card companies and and attempt to get interest rates reduced.
  • Use your credit cards as a last resort.
  • If you must use credit cards, preserve your cash and credit by continuing to make the minimum payments.
  • Although a bit complicated, maybe a tax free exchange into a two family home might boost your income and keep a roof over your head.

In summary, sometimes situations arise that prevent avoiding credit card debt. If you find yourself with no other alternative, do the best you can to keep your head above water. Continue looking for work, cutting back on expenses, and doing what you must to get by. Take advantage of any low cost services to help you along.

ACTION STEP:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

  • Take action every day to improve your situation.
  • Surround yourself with positive people, readings, and activities.
  • Keep spending to a minimum.

What are your recommendations for coping with financial distress?

    13 Comments

  1. The long-term unemployment for older workers is a big problem. I have a friend who is very knowledgable and has an MBA, but he can’t buy a job right now.

    Since life expectancy is rising dramtically and the retirement age will be rising as well, we need to take a look at this problem and find solutions. We can’t treat our older workers as if they are no longer valuable.

    Bret @ Hope to Prosper

    November 7, 2010

  2. Bret, That is exactly the situation which is so distressing. Employers regularly choose lower paid workers over those with more experience. And in some locations, the jobs are just gone!

    Barb

    November 7, 2010

  3. I’m always amazed at how long people live beyond their means before they make lifestyle changes. Just the possibility of getting laid off during this downturn made me cut spending drastically these last 18 months. I feel thankful that I’m still employed, so now I’m trying to make the most of it.

    I also have seen many people in their 50’s not be able to return to the jobs and salaries of their peak earning years. Right now, I’m planning for being able to live on less once I hit that age..just in case.

    First Gen American

    November 7, 2010

  4. I hear people rag on mortgage and car debt, but without those, it’s hard to get a job and a shower… 🙂

    Money Reasons

    November 7, 2010

  5. @First Getn American; You remarks are always so wise. I appreciate your candor and espousing smart financial decisions. The best personal finance tip is: Live beneath your means and save and invest the difference.
    @Money-Well-I guess you could get a shower in an apartment? And regarding the car, get a cheap car and small loan and have more cash in your pocket! But, a place to shower is definitely important! 🙂

    Barb

    November 8, 2010

  6. These are great tips, Barb. I think that it’s hard to admit when it’s time to cut expenses to the bare bones, especially if that means making a major lifestyle change like moving or selling a car. It takes a lot of gumption to make this move.

    Little House

    November 8, 2010

  7. @Little House, Change is really really difficult and when it comes to big lifestyle changes it’s even worse. This economy is so tough that lots of folks have to make some really difficult life decisions.

    Barb

    November 8, 2010

  8. I know many educated people who are unemployed. For instance, where I live, many of the advertising agencies have just packed up and left, or gone under. Therefore, these people are trying to find work anywhere because there is almost nowhere to go in this area in their field.

    If my husband lost his job,it would definitely be tough if he was unemployed very long. We manage our money well, but we do have 3 kids. I know a few people that have recently found jobs here, so I am getting a little bit hopeful. (Knock on wood.)

    People need to just cut their expenses as much as possible during good times, so they an prepare for the bad. But unless you have been through it, it may be hard to see that point.

    Everyday Tips

    November 9, 2010

  9. Hi Everyday- Families with kids are particularly susceptible to the severe pain of long time unemployment. Your recommendation to live responsibly when times are good is CRUCIAL. My hope here is to promote smart money choices. The future is very uncertain and one must prepare for the worst! Thanks for sharing your thoughts!

    Barb Friedberg

    November 9, 2010

  10. Hey Barb! This is why I think it’s so important to become (and stay) debt free. It is much easier to make lifestyle adjustments than to deal with debt payments during financial distress.

    I do feel bad for those who are educated and experienced, but unable to find work. It makes me wonder how much worse off these companies will be for replacing these workers with those who have little to no experience!

    Khaleef @ KNS Financial

    November 10, 2010

  11. Khaleef, You make an excellent point. Many companies are too short sighted and end up hurting their image, current employees, and their balance sheet by letting competent workers go.

    Barb

    November 10, 2010

  12. I’ve seen those clips, and my heart goes out to those people. I wonder if things would be any easier if they were more willing to move? Maybe they should look into Jacob’s philosophy of early retirement extreme. The idea of living a leveraged life and using one’s home as a bank account works well in good economic times, but some of that prosperity was false all along, as we are now discovering.

    Invest It Wisely

    November 15, 2010

  13. I always think moving to an area with more jobs is a good idea. We have moved at least 4-5 times in our married lives for jobs. I concur with your suggestion of going for the “bare bones” approach to living.

    Barb

    November 15, 2010

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