I had an early appointment that Saturday morning in February. Debbie Gardner showed up to meet with me and I listened to her story: single mom, two kids, 9 to 5 job, and no child support. Debbie had overextended herself on credit cards, car payment and other expenses. She also had recent unexpected medical bills not covered by her health insurance. Debbie had been renting and paying over $1300.00 month for a 3 bedroom apartment in North Dallas. Debbie was broke. Her credit cards were maxed out, past due and in collection status. She was 1 month behind on her car payment. She needed help.

Unfortunately, this is a typical scenario of the real problems presented by many of my clients. I am a mortgage officer and many families are currently experiencing the same type of financial problems. They are not trying to make a million dollars in real estate, they are just trying to make it to next payday and keep their family fed and the light bill turned on. But somewhere along the way they get way off track financially and then they are thrust into financial despair. They ask, “ How do I make it until next payday? How do I pay for food? How do I pay for childcare? I’m overdrawn at the bank. Do I try and get another payday loan?" It’s difficult to talk of buying a home or planning for the future when they are experiencing such turmoil in their life.

The factor, which is most disturbing about Debbie’s predicament, is her income. By now you are probably thinking she has an hourly job at minimal wage. What was surprising is Debbie earns over $60,000 per year as a full-time medical assistant. She is actually quite fortunate because so many others have the same type of dilemma earning only a third of the income. So the reality of this situation is Debbie has the capacity to turn this entire situation around. She can take back control of her life.

So where does one begin? How does a person get back on track and find a way to pay their creditors and rebuild their credit? There is an overwhelming amount of information in the marketplace on this subject of debt and credit. Consumers are bombarded with all sorts of advertisements and quick-relief plans. Advice is dispensed on the radio, on TV, through the mail and on the Internet. What is the right thing to do? Who knows best? Is bankruptcy an answer? Do you enroll in credit counselors who manage your finances and debt?

It is impossible for me to give such blanket advice, which applies to everyone and every situation. That is why the mass media’s advice is usually vague in general. There are certain standards and formulas for money management but those formulas lend little comfort to the person who is so upside down and fearful of their vehicle being repossessed. I believe…

A person who is drowning does not need a swimming lesson right then.

They need a life preserver.

When I hear of these types of situations, I keep it simple and suggest a 3-Step Program to prevent further financial decline and I call this program “Survival Mode."

Survival Mode

Survival mode is simply: assessing your situation, reprioritizing your immediate expenses, and developing the fastest route to getting back to even. Survival mode requires a real and honest approach to facing your creditors.

Step One: Make a List

List your assets (income and other sources of money) and liabilities (bills).

First Priority: Pay First

Housing, food, essential medical, electric bill, child support.

Second Priority: Pay Second

Car payment, fuel, insurance, telephone.

Third Priority: Pay Third

Credit card debt, student loans, other unsecured and installment debt.

When you are in survival mode, you must assign a priority to those things that must be paid first.

Step Two: Stop Borrowing

Find a way to pay the essential debts first with your assets. (household income). Do not borrow from anyone other than yourself (Only if you have savings or 401K.) You must find a way to create a new budget that you can survive on each month based on your total household income and the basic essential bills. That is part of survival mode. You need to plan this budget for a minimum of the next three months. This will also give you a little peace of mind if you know you have found a way to give yourself 90 days to develop a recovery plan. At this point, you may also need specific financial counseling (not consumer credit counseling) on what is your best option beyond the 90 days. Do not make quick decisions. Think it through before you rush out to file a bankruptcy or hire a monitored consumer-counseling program. Survival Mode requires levelheaded decision making and people do not think clearly when they are under the stress of a financial meltdown. Pay the essentials. Give yourself a moment. Know that you will survive this particular moment. Remember the experience so you remind yourself of the inevitable outcome should you repeat the same mistakes that resulted in this initial financial crisis. Part of this step is to also contact those you do owe and let them know you are working on a remedy. There is nothing worse than to be beaten down daily by creditor phone calls. Be proactive and inform them you will contact them when you have a developed a solution. Be professional but be firm. For now, your basic survival needs (shelter, essential clothing, food and medicine) come first.

Step Three: Make the Plan

After giving yourself time to regroup (2 weeks), develop a long-term plan for recovery. I cannot tell anyone what his or her specific plan will be. In Debbie’s case, it involved settling debt with creditors for less than full amounts and charging off other debts. It involved negotiating with the auto finance company to waive fees and penalties and have her future car payment deducted twice a month from her checking account. Her personal recovery plan involved rebuilding credit with a secured credit card provider. She had to change the destructive buying habits of shopping on the weekends as a hobby and making purchases and charges she had not budgeted. Debbie suffered from an ailment that so many Americans in financial turmoil have Lack of financial direction, or lack of a spending plan, commonly known as a budget. People shy from this word for they feel it is restrictive. In the contrary, a budget is very liberating tool. It allows a person to create their own personal plan for success and to achieve their life goals. A budget allows a person or family to direct what is important to them and to invest their money in those things. A budget takes discipline and forethought but it gives everyone the ability to live without further fear or embarrassment. Once Debbie put herself on a budget, she discovered she was able to dramatically improve her quality of life.

The Outcome

It has now been two years since that cold February morning I met Debbie and her children. Today, Debbie is debt-free, excluding her car note and house payment. Yes, I did say house payment. Debbie purchased a home just 10 months after facing one of the most stressful times in her life. She has never strayed from her new financial plan. She has money in a savings account for the first time in her life and she is enjoying a personal financial freedom that money can buy. Debbie found the way to live successfully on her income and then started investing her money in tangible things such as her own house, which were part of her life goals.

There is a life-lesson in her story:

Without a financial plan or limitless source of income, most people are destined to operate at the lowest monetarial threshold and face financial ruin. Those who develop and embrace a realistic budget for reaching their goals will live a longer, healthier, more prosperous life for themselves and their family.

© 2005 Rentbusters. All rights reserved.

Name changed in story for preservation of privacy.