Establish an Emergency Debt Crisis Plan

Debt Recovery Plan #6 - You have experienced a sudden and dramatic loss of income, most likely from the loss of a job, lawsuit or accident/disaster.

For this emergency debt crisis, you suddenly lost a significant income source, or you were hit with seemingly insurmountable debt. Even though a debt crisis is looming, your credit score may not have been impacted yet, and perhaps your bills are current, but soon they will be late. This is an emergency debt scenario where you will want to take action immediately.

• Way of Life - Get organized, study your expenses, create a budget, track the progress of your debt relief plan every month.
• Way of Life - Cut the frill like buying coffee on the way to work, pack your own lunch and stop eating out in general.
• Way of Life - Cancel magazine subscriptions, memberships and other costs that you can live without.
• Way of Life - Reduce cell phone luxuries or limit them to need-only - separate the "want" from the "need". Stick with a basic phone plan that you and your family can live with.
• Way of Life - Don't cut out TV unless you must, but minimize the service plan, and similar for your internet connection.
• Way of Life - Rent movies or go to the dollar-theater, and skip the popcorn.
• Way of Life - Get the whole family on board. Conserver energy, water, gas, mow your own lawn, cancel maid services, pet grooming, tanning beds, manicures, hair salons, chiropractors, etc. If you can't give many of these luxuries up, then your situation will not improve.
• Way of Life - Stop shopping except for food and the bare essentials!
• Way of Life - Look at 2 months of bank statements to find ideas where you can find debt relief. Some of these changes will hopefully be permanent, but most importantly a debt relief plan will buy you the time you need to get back on top of your debt.
• Lowering Expenses - Check your credit score, and actively begin a credit repair process to remove inaccuracies. Better credit means better interest rates, which will help out with the suggestions described below.
• Lowering Expenses - Consider refinancing your home, but make absolute sure that it will help your bottom line.
• Lowering Expenses - Consolidate debt through a home equity loan or credit card balance transfers.
• Lowering Expenses - Consider refinancing your auto loans, or "trade down".
• Lowering Expenses - If you have tax debt, contact the IRS or State, and work out a debt relief payment plan.
• Lowering Expenses - Take a close look at your phone bills. If you have a FAST broadband internet service, consider replacing your traditional phone service with a service from Vonage or Magic Jack or equivalent.
• Lowering Expenses - Try living only on cash, a debit card or a pre-paid credit card. Stop using traditional credit card unless it means no food on the table. Unless it is an emergency, if you can't afford to buy it in cash, then don't buy it.
• Lowering Expenses - Stop making 401k payments or other investments and use those funds to pay off debt. Consider cashing in your investments or other liquid or semi-liquid assets. If your investment returns less than the interest rate on your credit cards, then paying your credit cards off is the better "investment." Just be sure that every dollar taken away from your 401k goes directly towards repaying debt.
• Lowering Expenses - If you rent, speak with your property owner for a potential temporary reduction in fees.
• Lowering Expenses - Sell big ticket items that are seldom used. If you have 3 cars, but you can survive with two, then sell a vehicle weighing fuel economy and monthly payments. If you have a boat, trailer, motor home, motorcycles or other items that are not used regularly, then consider selling them.
• Increase Income - If your debt crisis stems from the loss of a job, immediately seek unemployment compensation. Now, make it your "job" to find a new job. Any job will do, just establish income as fast as possible. Once you secure a job, then focus on finding something that better suits your profession.
• Increase Income - If your debt crisis stems from a large financial burden, such as tax debt or medical bills, consider seeking a second job, volunteering for overtime, or have your children age 16+ seek employment. This does not have to be permanent, just until you get on top of your finances. This is NOT a good time to find "work from home" opportunities, which actually cost you more money to buy the kits, and are a big distraction.
• Increase Income - Buy time by raising cash. You may consider a garage sale, or liquidating assets such as stocks, bonds, or even a coin collection. If you are sued for not repaying your debt, or file for bankruptcy, you may lose these assetts anyway.
• Professional Debt Assistance - If your debt crisis is not quickly remedied, and you start missing debt payments, then professional debt relief assistance becomes an option. Depending on how long you have been impacted by the debt crisis, find our additional Debt Freedom Tips that best fit your situation.

You must prioritize which debts are paid first. Basic necessities take priority, such as food on the table and gas in your car to get to work. Next, you should pay your utilities and rent or mortgage. Also, any loans that tie into your home like a second mortgage or home equity loan, as these could be means for your home to be taken away. As for other debts including your auto loans, credit cards, personal loans, tax debt, student loans, and so on, you will have to prioritize yourself. You should also communicate with any debtors that you cannot repay, and try and work out repayment options.

Be creative but most importantly be proactive and stick to your debt recovery plan. You have an opportunity here to free up thousands of dollars per month and regaining a positive cash flow. As unpleasant as enforcing a debt recovery plan can be, it can get so much worse if you do not take action immediately. Take charge of your household, including your children, and get the job done. This is a time for tough love.