Money Girl answers a listener question about getting a mortgage with bad credit, and gives tips for surviving a financial crisis and rebuilding your credit as quickly as possible.
Tip #3: Survey the Damage
Once you’ve accepted that you’re in financial trouble, it’s time to survey the damage by completing 3 tasks:
1. Create your Personal Financial Statement (PFS) to get a bird’s-eye-view of your financial situation. Your PFS is a list of your assets (such as cash accounts, investments, real estate, and vehicles) and your liabilities (such as mortgages, loans, and credit card debt.) When you subtract your total liabilities from your total assets, you’ve calculated your net worth, which is an indicator of your financial health. If you’re in financial trouble, you probably have a low or negative net worth. Use a Net Worth Calculator to make creating your PFS simple
2. Record your spending history to see you cash inflows and outflows for the past several months. You may be doing this already if you keep a budget or spending plan. If not, it’s time to take a cold, hard look at where your money is going, and cut all expenses except the absolute necessities.
See also: Your Credit Score Survival Kit -- a free video tutorial that shows how to check each of your credit reports and build credit fast.
Tip #4: Contact your Creditors
If you haven’t been in contact with your creditors, start a dialog with each one immediately. Never try to hide from a creditor because--believe me--they won’t forget about you.
You’ll come out ahead and get favorable treatment from creditors if you’re proactive with communication, and are honest about your financial troubles. Ask them for solutions, such as deferring payments for several months, setting up a reduced payment plan, or refinancing a loan to take off the pressure.
By the way, creditors are likely to ask details about your financial situation, so have the information from my previous tip, such as your monthly income and expenses, on hand when you speak to them.
Tip #5: Maintain an Emergency Fund
Many times, we get into financial trouble in the first place because we don’t have a financial safety net. Once you begin to work through a money crisis, make it a goal to accumulate a reserve equal to 3 to 6 months’ worth of your living expenses.
If that’s too overwhelming to think about, start with a smaller emergency fund target, like saving $500 within the next year, or putting away $50 a month. Having some amount of financial cushion to keep you safe is far better than having none.
See also: 3 Emergency Fund Mistakes to Avoid