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How To Avoid A Financial Collapse
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The shocking number of foreclosures caused by the subprime mortgage mess may be taking over the headlines these days but the sudden surge of personal debt from mortgages, credit cards and other loans is part of a far larger problem than consumers are facing all across this country. Recently, I wrote an article discussing how a lot of people in foreclosure are resorting to using their credit cards in greater numbers just to stay afloat. Thus, it’s not just mortgages that we are struggling with in these uncertain financial times.  I predict that unless consumers get a handle on their own personal debts (mostly credit cards), this could the next crisis that this country will soon be facing.

Statistics show that there has been an explosion of credit card debt. Today, approximately one-third of households have credit card debt over $10,000. Although bankruptcy laws enacted in 2005 made it more difficult for many to file, statistics show that bankruptcy filings have actually gone up. In California, a recent poll shows that a whopping 63% of residents report that their financial situation is worse from just a year ago.  These numbers are higher than the previous high of 50% in 1992 when California was in a deep recession. The same poll shows that overall, 86% of Californians believe that our state is in bad economic times.  That’s the worst assessment in 15 years.

OK, so as you continue to hear about the stock market plunging and the banking industry being in shambles, what can you do to protect yourself in the midst of this financial turmoil?  Maybe you’re so pre-occupied with your own personal financial problems that you don’t even find the time to keep up with what’s going on around you.

I think the first thing that you should do is to make sure that you have some kind of an emergency fund, at least enough for 3 months of living expenses. I know, I know. When you are living paycheck to paycheck, you can barely make ends meet that you can’t even set aside a few hundred dollars every month. But in these uncertain economic times, trust me. There is nothing better than having a bit of financial cushion in case of a financial emergency. Consider cutting spending where you can and eliminate expenses that you can live without.

Secondly, make sure you are not borrowing more than you can pay back. A lot of people come to my office telling me that they are tired of juggling their credit card debts every month. They use credit cards to pay other credit cards just to make the minimum payments. This seems to work for them for a short period of time but before they know it, they are buried in credit card debt. Remember that you cannot borrow your way out of debt. The only way to get out of debt is using the money you already make to pay what you owe and to stop borrowing. I know this sounds easier said than done but that is the simple truth.  To believer otherwise is utter foolishness.

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