Survive a Financial Crisis (and Still Get a Home Loan with Bad Credit)

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.

Laura Adams, MBA
7-minute read
Episode #367

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.

3.    Check your credit report to find out what your credit history looks like. You can get it for free once a year from each of the 3 national credit reporting agencies at annualcreditreport.com.

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.

See also: Should I Pay Off Old Debts or Settle Them for Less?

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


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.